Tag: Auto Finance Fraud


How We Help Auto Lenders Comply with Dealer Monitoring Regulations

I read an interesting article from Christine Pratt at AITE which was very interesting. You can read the article here – Are Indirect Auto Lenders the Real Target of the FDIC’s New Third-Party Guidance?

Something which we have known for years and now happening, is more regulation for Indirect Auto Lenders and the dealers that they work with.  The government has required mortgage lenders monitor their third party lenders and brokers for years.  We should know.  Many of the staff in PointPredictive were responsible for launching the broker and third party lenders monitoring tools in the mortgage industry.

 The FDIC is Honing in 3rd Party Monitoring

The Consumer Financial Protection Bureau’s has been pushing for more 3rd Party monitoring in the auto lending industry.  As Christine Pratt indicates, “The new FDIC requirements are heavily weighted toward the complete investigation of any third parties’ financial performance as well as ongoing monitoring requirements and will place serious constraints on lenders’ resources. It is incumbent on indirect auto FI lenders to very carefully examine this new guidance and be mindful of a very tight timeline for comments. The original comment date of September 12, 2016 has been extended to October 27, 2016—and right now there are no comments on the FDIC site. This should be an immediate call to action for indirect auto lenders, auto dealers, and the groups that work closely with them (American Bankers Association, National Auto Dealers Association, and the like).”

PointPredictive Offers the Industry’s Only Auto Dealer Risk Monitoring Network

PointPredictive provides the industries first comprehensive tool to help Auto Lenders comply with their 3rd Party Monitoring and risk management.

We began collecting information on the vast network of 40,000 auto dealers in the US to build monitoring tools which can dynamically help lenders understand the fraud, credit and performance risks of dealers across the industry.

From our experience, less than 10% of auto dealers represent the majority of the fraud and early payment default risks for auto lenders. Our Dealer Monitoring Solution provides auto lenders with an early warning system to identify those very few bad apples in the bunch so they can improve their overall loan quality.”

Dynamic Monitoring Updated Each and Every Transaction

As part of the Dealer Monitoring Solution PointPredictive leverages proprietary technology which update s for each and every transaction that a dealer submits to the system.     The dynamic monitoring ensures that good dealers are not penalized, and dealers that are risky are identified at low false positives.

Auto Fraud Network Alerts

As part of Dealer Monitoring, the solution provides alerts from the network about prior fraud experience.  We know from our analysis of 3rd Party Monitoring, the ability for lenders to share their information on fraud risk is critical.  The mortgage industry has been doing it for years, it’s time the auto lending industry had the same types of tools and alerting programs.

Portfolio and Application Level Analysis

As part of the Dealer Monitoring Solution, PointPredictive offers the capability of retro-scoring entire portfolios to mine for the level of outstanding risk.

We often find that the first retrospective analysis is capable of identifying the most serious and risky dealers on the books with a lender.

The retrospective scoring can also help identify underlying loans that represent the greatest risk of default if the lender is servicing the portfolio.

Hosted Service for Rapid Setup

Lenders that are short on time or that require an immediate setup of the service can be setup relatively quickly at PointPredictive through batch hosted dealer monitoring platform.   This helps lenders that are short on time for compliance become compliant very quickly.

Thanks for Reading.

Thank you for reading and if you would like to reach us, contact us at [email protected]tpredictive.com


Estimating Auto Fraud Lending Losses in the United States


Auto Lending fraud and risk losses are on the rise in the US.   The numbers are out and they are not good.  Last quarter uncollectible auto loans soared to over $1.1 Billion dollars and delinquencies on subprime loans hit their highest level since the worst recession in US history.  More concerning is that the rapid growth in auto lending is being fueled in part by deep subprime lending to borrowers with credit scores less than 500.

With auto lending origination levels soaring to some of their highest levels in history the downstream impacts are beginning to reveal itself with concerning levels of fraud.

As former experts in Mortgage Fraud Analytics,  PointPredictive is beginning to see history repeat itself – but this time in the Auto Industry.  In 2004, Mortgage lending volumes were hitting new heights thanks to an increase in subprime and non-direct lending through brokers.  Fast forward 12 years later and the Auto industry is experiencing the same types of rapid growth which is fueling the same sparks of fraud risk that erupted in the mortgage industry.

The Hidden Cost of Auto Lending Fraud are in 3 Areas

There is no central reporting agency for US Auto Lending Fraud so assessing the absolute levels of fraud losses in the US is difficult. The cost of Auto Lending Fraud does hit the bottom line of banks and lenders but it may not always be categorized or recognized as a fraud loss.

Auto lending fraud losses are typically seen in the following areas:

1) Early Payment Default –  Loans that default within the first 6 months have a much higher probability of containing material misrepresentations in the original loan application than loans that default much later.  PointPredictive believes that between 30% to 40% of early payment defaults in the auto lending industry can be directly linked back to some type of fraud misrepresentation.

2) Dealer Losses –  Auto Lenders, particularly in subprime lending experience high levels of risk based losses that can be tied back to individual dealers.  Some dealers have extremely high levels of early payment default, known fraud and bad loan quality that leads to losses.

PointPredictive analysis has determined that based on the lender, that almost 100% of their fraud losses may be coming from less than 3% of their dealers and close to 100% of their early payment default losses may be coming from just 10% of their dealers.

Dealer losses may not always be categorized as fraud, however through careful analysis lenders often determine that many of the losses they take are due to intentional misrepresentation at an industrial scale.

3) Fraud Losses – Most auto lenders do have some tracking in place for their fraud losses however it may not always reflect all of their losses since so much fraud is often hidden.  Identity Theft, Straw Borrower, Collateral and Dealer Fraud often top the categories of losses that lenders take on for fraud.

US Auto Lending Fraud Losses are in the Billions

Based on data analysis and industry studies, PointPredictive believes that auto lending fraud loan originations are between $2 billion to $3 billion annually based on the current origination volumes of $600 billion dollars.

auto fraud cost lenders billions

This conservative estimate assumes that approximately 30% of early payment default losses in the US contain material misrepresentation and that identified fraud is running at approximately 20 basis points of origination volume.

By applying conservative estimates to the origination volumes, it is clear that auto lending fraud is not a small problem but one that cost the auto lending industry potentially billions  a year.     Additionally, with loan quality (particularly in subprime) eroding quickly PointPredictive believes that auto lending fraud losses and rates could rise dramatically in the next 18 months.

Applying Analytic Models to Assess Risk

PointPredictive applies analytic pattern recognition models which helps auto lenders determine the latent levels of fraud and risk sitting in their servicing portfolios.  By analyzing application and loan level information, PointPredictive estimates which applications and loans are most likely to contain fraud and misrepresentation which helps lenders and banks understand how much risks is sitting on their portfolios

Additionally PointPredictive deploys these same models with auto lenders to identify risky loans prior to approval so underwriters can take the necessary actions to stop the fraud and risk before it is approved.

For questions, contact [email protected]