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The defi Team defi INSIGHT, Fraud

down payment fraud detection

Fraud has become the preferred way to acquire vehicles with minimum effort. According to a study by PointPredictive, auto lending fraud has increased approximately 38% in the last seven years. The same study projected loan origination fraud to reach $7 billion in 2019. Fraudsters, either acting alone or as a front for global cartels, have concocted numerous schemes to obtain the keys, the car, and profit from the theft. Luxury cars are targets for global cartels. A car is off the lot and sold offshore well before the lender realizes the first payment is delinquent.


Down Payment Fraud Detection Key Points:


  • Loan fraud is on the rise with false identities as a leading scheme
  • Substantial down payments help disguise a fraudulent loan application
  • Lenders need to employ fraud analytics to identify and decline fraudulent loan applications

Procure the Fake Identity

This is the fundamental step in perpetrating fraud. The person applying for the loan has no actual association with any of the information contained in the loan application. The internet and frequent data breaches make it easy to create a false identity and misrepresent financial credentials that convey exceptional credit rating and financial strength.


Fraud cartels have the financial resources to offer a significant downpayment. They’re running multi-million dollar global fraud operations. Fraudulent individuals may not be that generous with the down payment, or think nothing of writing an NSF check.


Synthetic identity is created from different illicitly-acquired data sources to create a non-existent but seemingly credible borrower profile. Credit Protection Numbers (CPNs) are used to create new credit files using falsified information. Excellent credit score, a social security number, affluent neighborhood address, employment history, and other attributes create a seemingly legitimate persona deserving of quick approval and great terms. Synthetic identity fraud is on the rise, with a 140% increase since 2016.


Straw buyer schemes can involve an applicant who has poor credit and convinces a friend or relative with better credit to front the deal. Better credit scores get better terms, a more valuable vehicle, or both. A buyer with no intention of honoring the loan may place a relatively substantial downpayment to make the application seem more legitimate. Alternatively, the straw buyer is part of a fraud ring and the vehicle is quickly sold in a foreign market. The success of straw-borrower schemes perpetrated by fraud rings will continue to cause problems for lenders unable to combat these scams.


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The Best Loan Down Payment Fraud Detection Methods

The growing volume of fraudulent loan applications fronted by down payments intended to boost financial credibility can only be detected with the aid of machine learning and analytic techniques. As keen and experienced as an underwriter might be, they can’t match the speed and efficiency of automated fraud detection.


Based on an analysis of more than 70 million historical auto loan applications, machine learning techniques create and continually refine algorithms that identify indicators that correlate with loan fraud. False identity, straw borrowers, misrepresented information, and even down payment amounts that appear to be “outliers” in comparison to all of the other information included in the loan application can quickly be identified using fraud analytics. Identifying and declining fraudulent loan applications, regardless of how convincing the downpayment, the moment the application is submitted is the best method for detecting and preventing fraud.

Down Payment Fraud Detection

PointPredictive estimates that as many as 20% of defaults could be tied to fraudsters using stolen or synthetic identities. Don’t let a generous loan down payment disguise a false identity or straw buyer. Modern loan origination solutions natively integrated with fraud analytics services are the best defense against this type of fraud.


Getting Started

defi SOLUTIONS’ loan origination and analytics software experts will help you combat loan application fraud using the latest cloud-based loan origination and fraud analytics capabilities. Take the first step toward reducing fraud risk by contacting our team today or registering for a demo of the defi LOS solutions.


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