It’s the last day of the month. The dealer’s numbers are good, but one more deal would make it a record month. The loan application you’ve just received from them should sail through your loan origination process. The applicant’s credit scores, down payment, vehicle valuation match your credit policies. Income statement indicates financial stability. You verify employment by calling the number on the application. In a few minutes you structure a deal that works for you, the borrower, and the dealer.
Six months later, however, that loan becomes 60-days past due. A month later you declare it delinquent, and begin recovery proceedings. There was hidden evidence of risk in the application—employment verification fraud—but you never suspected it. With auto loan application fraud on the rise, how will you identify it and prevent it from affecting your portfolio?
Income Inflation and Employment Verification Fraud
Intentional misrepresentation of information—income inflation and employment verification— are two of the most frequent schemes used by fraudsters. Income misrepresentation is easy. Misstate your income on the application] and create (online) a falsified document to confirm it. Employment verification fraud requires a bit more effort and cost. Often a fraudster uses both schemes to obtain the loan, making the deception more difficult to detect.
How to Commit Employment Verification Fraud
The internet works to the benefit of fraudsters. Spotty employment record or recently laid off? No problem! There are many services online that offer a range of false, but seemingly credible, evidence of stable employment. Some individuals need employment verification for a loan, while others are looking to improve their chances of becoming employed. Depending upon their goal, would-be fraudsters can:
- Obtain a phone number and/or email address where a person representing the employer will vocally or electronically confirm the applicant’s employment record;
- Provide a link to a seemingly legitimate company website as evidence of an employer’s existence;
- Obtain letters of recommendation from fictitious current and former supervisors; and
- Get help in creating a resume that demonstrates a solid employment history.
Some services even offer clients a choice of a blue-collar, white-collar, or professional package of services. For a fraudster, a hundred-dollar investment in employment verification fraud to improve their chances of driving a car off the lot is money well spent.
How to Detect Employment Verification Fraud
The internet also works to the benefit of lenders. Increased digitization of commerce creates ever-greater volumes of information about legitimate and illegitimate business transactions and relationships. Cloud- and machine-learning-enabled fintech now help lenders detect employment verification fraud without having to review every auto loan application manually.
A practical approach to reducing the risk of employment verification fraud may include one or more of the following processes:
- Apply decision rules and workflow to selectively screen auto loan applications based on credit scores. Given the correlation between defaults and credit tiers, establish a credit score threshold below which those applications will receive additional scrutiny.
- Incorporate Equifax’s verification services into the loan origination workflow to automate employment verification. If verification fails, the workflow routes the application to an experienced underwriter to contact the employer, add a stipulation to confirm employment in writing, or decline the loan based on incomplete or inaccurate information.
- Employ automotive fraud detection services from providers like PointPredictive to analyze auto loan applications and conduct a holistic evaluation, looking for evidence of hidden fraud. Based on machine learning analysis of tens of millions of loan applications, the service calculates the probability of misrepresented employment information and provides a confidence score and reason why employment verification fraud is suspected. Based on the score and reason, the loan origination workflow can then route the application for further verification or decline the application.
The increase in auto loan application fraud, with income inflation and employment verification fraud being so easy, demands that lenders use the latest fintech to combat fraud. These technologies automate application fraud detection, and prevent high-risk loans from hurting your profit and portfolio. In today’s hyper-competitive auto loan market, lenders need to use every advantage to remain competitive and profitable.
Fraudsters leverage the internet and increasingly sophisticated means of using misinformation to acquire cars. We’ve discussed one of the more popular fraud schemes in this blog; there’s more in The Hidden Patterns of Auto Lending Fraud Revealed webinar.
defi SOLUTIONS‘ loan origination and analytics software experts welcome the opportunity to show how integrated auto loan analytics give you the competitive advantage. Take the first step toward improving the efficiency of your lending practice by contacting our team today or registering for a demo of defi LOS and defi Analytics.
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