Frank McKenna, Point Predictive chief fraud strategist, on Sept. 6 told Automotive News nearly every dealership his company has talked to is reporting more fraud.
“They’re telling us that their fraud rates have increased pretty significantly,” he said.
Retailers who have never seen fraud before are reporting multiple cases — and those incidents primarily end with indirect lenders forcing dealerships to repurchase the loans, he said. Buying back a loan can set the dealership back tens of thousands of dollars, a loss that would require multiple car sales to cover, he said.
“Those dealerships now are getting hit with a lot more of those,” McKenna said. “They’re looking for ways to stop it.”
McKenna said these chargebacks arise when lenders discover identity theft, which he said has become more sophisticated. The fraudsters have “really good fake IDs” and “know everything about the customer,” he said.
This knowledge has reached the point scammers can answer verification questions such as their victim’s residence in a given year and last auto lender, McKenna said. He said fraudsters will obtain this information from sources such as Credit Karma.
Another growing auto loan fraud trend involves scammers who create a phony identity rather than steal an existing one, a crime known as synthetic fraud.
“Synthetic fraudsters look like real people with great credit scores and well-established employment, which makes it very difficult for dealership personnel to identify,” TransUnion Senior Vice President Satyan Merchant said in a July statement.
Merchant in January said the synthetic fraud rate in auto lending had grown nearly 30 percent from the first quarter of 2021.
“Incidence of synthetic fraud in auto lending has grown faster than any other financial sector as we emerge from the pandemic,” he said in a statement.
Another problem involves what Point Predictive calls “fraud for car,” when consumers who need transportation lie about their income or employment to qualify for a car loan. Such lies can also arise in “fraud for profit” cases, according to the company.