The faces of F&I fraud

on Sep11


Fraud is rising across most U.S. industries, and auto retail is no exception. Old and new types of fraud are keeping dealers and lenders on edge.

The annual value of auto loan originations that contain some element of fraud may be as high as $6 billion this year, double the value estimated for 2016 originations, according to PointPredictive, a San Diego company specializing in fraud detection.

The share of identity-theft complaints related to auto finance is up, too. According to the Federal Trade Commission, 1.7 percent of identity-theft complaints last year indicated that auto loans or leases had been generated by ID thieves, up from 0.8 percent in 2015.

An erupting fraud type in auto finance, and the fastest growing form of identity theft, is synthetic identity fraud, whereby a fraudster creates an identity with attributes from several individuals. Synthetic identity fraud is largely unknown to the public but is a growing threat to auto lenders.

Growing plague

U.S. consumers have lost more than $107 billion to identity thieves in the past 6 years. Here’s what the last 2 looked liked.
  Victims Total stolen
2015 13.1 million $15.3 billion
2016 15.4 million $16 billion
Source: Javelin Strategy & Research

Dealerships are facing — alongside the threats of phony buyers and data attacks — the fraud risk that comes with hiring and working with unvetted employees. Many dealers skip criminal background checks, which in the long run could leave them on the hook for way bigger costs than the price of checks, plus a reputation to fix.

Also worrying are fraud rings. These groups’ prolific activities are making verifications of consumer information even more important. Often, though, the fraudsters are a step ahead, setting up fake call centers that confirm false income and employment data.

Still, the auto finance industry is not lying down. Dealerships are working hard to eliminate unethical practices and consumer data mishaps. Lenders are focusing on helping them do it, providing guidance on implementing prevention and detection tools and incorporating a business culture that makes anti-fraud tactics a priority.

Some lenders and third parties are mulling the benefits of sharing data across companies, countries or sectors to find common fraud threads, although a large-scale auto finance fraud consortium has yet to take shape.

In this special section on finance and insurance, Automotive News will highlight the types of fraud that affect dealerships and lenders, how to prevent and detect fraud and how industry players can work together to prevent auto lending fraud as a whole.

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