6 Recent Auto Lending Fraud Trends Identified in Our Proprietary Data Repository
Our data scientists and fraud consultants are always looking for hidden patterns of fraud. We regularly analyze the millions of loan applications in our Auto Lending proprietary data repository and evaluate loan performance data to identify unique trends to help our clients better understand and thwart even the newest fraud schemes.
Here are some of our latest findings.
- First-party fraud causes the majority of losses
When it comes to auto lending, it’s not always sophisticated criminal syndicates you need to be most worried about. Most losses and fraud exposure are a result of borrowers and/or dealerships misrepresenting material information to improve the chances of the borrower getting approved. This includes income misrepresentation, employment and/or employer misrepresentation, and straw borrower fraud. Together these fraud types make up nearly 80% of auto lending fraud losses.
- Fake employers are everywhere
Fake employers can be found all over the web. They will forge pay stubs for you. They will verify your employment over the phone. If you’re willing to pay, they are willing to help. We have identified more than six thousand fake employers in our Auto Lending proprietary data repository and the number goes up literally every week.
- Falsified income continues to increase each year
Based on a recent analysis of our Auto Lending proprietary data repository data, we found that as many as 25% of auto loan applicants may be inflating their income on their applications. The need to “stretch the truth” in an attempt to qualify is expected to continue to rise as car prices remain at record highs and interest rates also rise.
- Inflating income, even a little, affects losses
You might think that when people lie about their income, they lie big. But they don’t. Well, some do, but most we say “lie average.” The most common salaries stated by income falsifiers on auto loan applications are remarkably similar to those stated on non-fraudulent car loan applications. The most-reported annual income for loans containing income misrepresentation last year was $48,000. Given that the average annual salary in the US last year was $51,000, fraudsters are using annual incomes that are in line with the national average.
- Credit washing is becoming more common
Credit washing is the systematic dispute of derogatory trade lines at a national credit bureau by claiming that negative payment behavior is a result of identity theft. We identify suspected credit washing cases based on rapid changes in tradelines and credit scores within a year (i.e., applications that are submitted within one year of each other where a borrower’s credit score has increased significantly while the number of trade lines reporting for that borrower decreased significantly. In our Auto Lending data repository, we’ve seen credit washing increase by 400% since 2019.
- Auto loan applications with suspected synthetic identity traits continue to increase
In the auto loan applications we scored in 2021, cases of potential synthetic identities doubled compared with 2020. The 2021 loan applications that had suspicious synthetic identity markers had a total application exposure of $2.8 billion. Thankfully not all of these loans were approved and funded as many lenders have taken more proactive measures to identify these applications earlier in the originations process.
The good news is most auto lenders are investing in fraud controls and training. The fight against fraud continues to be a challenge for automotive lenders, but according to a Point Predictive survey conducted in 2021, they are shifting their methods to better prevent these schemes in the future. Of lenders surveyed, most lenders plan to invest in analytics, new technologies, and data in the fight against fraud. More than 30% of auto lenders stated they plan to spend more time and money training their internal resources on how to detect and prevent fraud.