Recycling Employers On Applications Can Point To Systematic Fraud

By Justin Hochmuth, Fraud Consultant

It’s common knowledge that borrowers who misrepresent their income, use fake employers, or supply forged paystubs are significant threats to auto lenders and car dealerships alike. This type of fraud is nothing new to the auto lending industry. However, what if the fraud isn’t being committed by the borrower and instead is committed by one or more employees of the dealership? In a recent Point Predictive survey, auto lenders reported that about half of all income and employment misrepresentations may be conducted by the dealership, not the borrower.

The issue that lenders grapple with is how to differentiate fraud that is committed by the dealer from fraud that is committed by the consumer. This distinction is important because dealing with these different sources of misrepresentation may require significantly different approaches.

Employer Recycling Is A Dead Giveaway of Systematic Dealer Fraud

At Point Predictive, we score millions of applications each month originating from more than 45,000 car dealers nationwide. This creates a rich consortium of data through which we can see trends across dozens of lenders and dealerships, including loan performance.

One of the key signs of potential dealer fraud is when a dealership recycles phone numbers or employers. Auto dealerships are competitive. In metropolitan areas, if someone is unsatisfied with a dealership, it is easy to walk next door, or across the street in the pursuit of a better deal or a better car. When we see multiple employees of the same business applying for auto loans at the same dealership, it raises suspicion.

A Case Study in Houston Texas Involving $2 Million in Suspected Fraud

Recently the Point Predictive team identified the recycling of three employer phone numbers and employer names in applications originating from one dealership in Houston Texas. What made this unusual was that despite hundreds of car dealerships in the greater Houston area, all of the applicants that worked for these three employers went to this same single dealer location.

And there were some major red flags. The employers listed on the applications were in the cleaning, transportation, and pharmaceutical

industries. None of the companies were legitimate and the phone numbers reverse searched to Non-Fixed VOIP phones. The total value of the submitted applications originating from this dealership was more than $2 million. Many lenders received applications from this dealer and Point Predictive notified all lenders that were impacted by these applications.

After the lenders completed their own investigations, the fraud scheme was confirmed. Many of the lenders confirmed that the dealership was manufacturing paystubs and employers to qualify prospective customers. Some of the applicants were potentially even reused from previous dealership applications and were not currently in the dealership at the time of application. Four different lenders ended up terminating their relationship with the dealer as they determined the dealer engaged in systematic fraud.

Collaboration is Key To Finding Dealer Fraud

The consortium approach to fraud prevention gives visibility outside of each lender’s applications. Through Auto Fraud Manager, DealerCheck, and a team of fraud analysts trained to locate these types of patterns, Point Predictive gives lenders the best advantage to identify these potential threats and eliminate future fraud losses.