Closing the fraud gaps in auto finance: 4 areas to watch  

Automotive manufacturers and lenders have made strides in automation, vehicle delivery options, online shopping and faster loan decisions, but those same improvements have opened the door for fraudsters to target auto loans and vehicle purchases.  

Here are four areas of opportunity lenders should watch:  

1. Automation and machine learning: Automation and machine learning have made decisioning faster but also opened the doors for fraudsters to submit multiple applications quickly and “test the waters,” Mike Pereira, vice president of lending operations at Clearwater, Fla.-based MidAtlantic Finance Company, told Auto Finance News.   

“When you build out and you automate processes, that sometimes does create gaps where fraudsters see opportunity,” Pereira said. “Fraudsters learn what gets by and what lenders look at by doing applications. They’re testing the waters to see who approves them versus who doesn’t approve them.” 

Fraudsters are also aware that auto lenders have implemented automatic decisioning and have identified the data they need to include in order to obtain an auto loan, such as a FICO score and a certain income level, Scott Ellefson, fraud specialist at VW Credit, told AFN.    

Lenders must implement multiple review processes to catch fraudulent applications that make it through, Pereira said, noting MidAtlantic has “been able to catch a lot of [fraud] on the back end that we missed on the front end because it is an automated process.” 

2. Move to digital: Lenders and retailers with a digital presence typically see a slight increase in the volume of fraud coming through their system, Jessica Gonzalez, director of automotive at Informed.IQ, said recently during the Bank Automation Summit Fall 2022. 

“Fraudsters are getting trickier and more sophisticated, and they’re using digital platforms to enable their fraud,” she said, noting the average fraud rate across Informed.IQ’s portfolios is about 2.25%. “If you’re a digital retailer, you’re going to be 10 times more likely to see fraudulent pay stubs as well as fraud documentation across mortgage and lending.”  

3. Remote delivery: Vehicle deliveries are another way fraudsters may take advantage of an option meant to make the car-buying process more convenient, said Sgt. Darren Schlosser, who oversees vehicle fraud investigations at the Houston Police Department.  

“Who typically delivers the car to the customer, even if it’s a local delivery or 30 minutes away, is not the salesperson … a porter delivers the car. That’s the only time you’re going to be able to identify that the person is the person who takes possession of the car and claims to be [the purchaser],” he said, noting online transactions make it difficult to ensure identities match.  

4. Credit repair: Consumers’ ability to dispute tradelines on their credit reports was meant to help victims of identity theft, but inadvertently provides an opportunity for fraudsters to “repair” consumers’ credit and apply for auto loans, multiple sources told AFN. 

At VW Credit, for one, less than 1% of all indirect ID theft claims are found to be legitimate, Ellefson said. 

Lenders can work with fintechs to identify potential misrepresentation by comparing data on a borrower’s credit history to see how many tradelines have disappeared over a period of time, MidAtlantic’s Pereira noted.  

Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 26-28 at the Wynn Las Vegas. To learn more about the 2022 event and register, visit www.AutoFinanceSummit.com.