The Growing Threat of Auto Lending Fraud

There are many variations of auto loan fraud. To better understand what you can expect to encounter, let’s look at five of the most frequent.

1) Income – Instant Wealth With Just a Few Clicks

Subprime applicants are frequently granted conditional approvals, subject to stipulations. Income verification is a frequent requirement. There’s no shortage of websites that make it easy to create a fake paystub. Provide a credit card number, and they’ll guide you through the process, recommending the type of statement, income, and monthly or weekly pay ranges based on the supposed occupation and location. The goal is to make the resultant paystub appear as authentic as possible. Fill in the information, click print, and send it to the dealer or lender, who, in the interest of selling the car or booking the deal, may not give it any further scrutiny.

2) Employment – A Stellar Record, Including References

Employment verification is also frequently associated with conditional approvals. You’ll find many online services to confirm employment by phone or letter. Fees for the service vary from one hundred for the basic service to several hundred dollars for the executive service, including employer website, phone number and email address for the HR department, references from former managers, and even a customized LinkedIn profile. Of course, all of this is fictitious, but a motivated borrower can rationalize this expense as an economically justified means of acquiring a vehicle. Employment confirmation by phone call or letter can be a quick check-off stipulation, but it merits greater attention, especially when a high-end vehicle is in the deal.

3) Straw Buyer – “For a Friend”

The typical straw buyer scenario involves someone with poor credit convincing a friend or relative with better credit to front the deal, posing as the one buying the vehicle. A better credit score can get better terms, a more valuable vehicle, or both. In the best case, the actual buyer continues to pay the straw borrower throughout the loan. Typically, the loan becomes delinquent, a friend’s credit score takes a hit, and the lender begins the recovery process. In the worst case, the straw buyer using a false identity is part of a fraud ring, and the vehicle has already been sold in a foreign market.

4) Synthetic Identity – I Am What I Am (Not Really)

Data breaches that expose personally identifying information facilitate identity theft. It’s difficult for an individual to perpetrate this scheme. When it happens, there’s usually a fraud ring coordinating the effort and deploying the scheme widely to maximize gains.

Synthetic identity allows a perpetrator to combine various illicitly acquired information to create a false, non-existent, seemingly credible borrower profile. Excellent credit, a social security number, a home address in an affluent neighborhood, solid employment, and other attributes create a seemingly legitimate persona deserving quick approval and excellent terms. However, a detailed and thorough investigation of this persona will reveal subtle inconsistencies indicative of high risk.

5) Collateral – Claiming More Than It’s Worth

This scheme is the realm of dealerships. Before submitting the loan application to a lender, dishonest dealers can modify the information to their advantage. Inflating the vehicle's value and reducing or failing to mention the downpayment are two immediate means to boost dealer profit. An astute buyer will eventually notice the discrepancies, but an experienced dealer will have finessed the paperwork, making it appear that the buyer agreed to the terms.