EMPLOYMENT VERIFICATION FRAUD IN AUTO LOAN APPLICATIONS

It’s the last day of the month at an auto dealer. While the dealer’s numbers are good, they want one more deal to make it a record month. The loan application the lender just received from the dealer should sail through the loan origination process.

Everything looks good. The applicant’s credit scores, down payment, and vehicle valuation all match the lender’s credit policies. The income statement indicates that the applicant is financially stable. Employment is verified by calling the number given on the application. A deal that satisfies the lender’s criteria is structured in a few minutes. The borrower is happy, and the dealer chalks up a new record sales month.

Six months later, however, that loan is now 60 days past due. A month later, the lender declares it delinquent, and recovery proceedings begin. What happened? There was evidence of risk hidden in the application that the lender never suspected. This is what’s referred to as employment verification fraud, which all auto lenders should know. But with auto loan application fraud on the rise, how can lenders identify and prevent employment verification fraud from affecting their portfolios?

Employment Verification Fraud and Income Inflation

Income inflation and employment verification fraud are two of the most frequent schemes fraudsters use to misrepresent information on an auto loan application intentionally. Income misrepresentation is easy. It just takes misstating income on the application and creating falsified documents, often from online sources. Employment verification fraud requires a bit more effort. Often, a fraudster uses both methods to obtain a loan, making this deception even more challenging to detect.

How to Commit Employment Verification Fraud

The Internet provides many benefits for fraudsters. Multiple online services offer a range of false but seemingly credible evidence of stable employment. While some people might need employment verification to improve their chances of getting hired, others use it to get a loan.

How Fraudsters Commit Employment Verification Fraud
Obtain a phone number and 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.
Forge letters of recommendation from fictitious current and former supervisors.
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 benefits lenders. Increased digitization of commerce creates ever-greater volumes of information about legitimate and illegitimate business transactions and relationships. Cloud-based software applications that utilize fintech with machine learning technology help lenders detect employment verification fraud without manually reviewing every auto loan application.

A practical approach to reducing this 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, it will establish a threshold for credit scores. Applications with credit scores below a certain threshold 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 who will contact the employer, stipulate that employment must be confirmed 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 holistic evaluations to find evidence of hidden fraud. Based on machine learning analysis of tens of millions of loan applications, this service calculates the probability of misrepresented employment information, providing a confidence score and the reasoning behind any suspicions of employment verification fraud. Based on the score and this reasoning, the loan origination workflow then routes the application for further review or declines the application outright.

With the ease with which applicants can commit income inflation and employment verification fraud, it’s no wonder there has been an increase in auto loan application fraud. The prevalence of such fraud necessitates lenders’ use of the latest fintech to combat fraud. These technologies automate application fraud detection and prevent high-risk loans from getting into a lender’s portfolio and hurting their profits. In today’s hyper-competitive auto loan market, lenders must use every advantage to remain competitive and profitable.