It’s the last day of the month at an auto dealer. While the dealer’s numbers are good, they would like one more deal to make it a record month. The loan application the lender just received from the dealer should just 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. In a few minutes, a deal will be structured that will satisfy the lender’s criteria. The borrower will be happy, and the dealer will chalk up a new record sales month.
Six months later, however, that loan is now 60 days past due. A month after that, the lender declares it delinquent, and recovery proceedings begin. What happened? It turns out 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 is something that all auto lenders should be aware of. But with auto loan application fraud on the rise, how can lenders identify and prevent it from affecting their portfolio?
Income Inflation and Employment Verification Fraud
Inflating income and falsifying employment verification are two of the most frequent schemes used by fraudsters to intentionally misrepresent information on an auto loan application. 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 the chance of getting hired, others use it to get a loan. 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.
- 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 having to review every auto loan application manually.
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 that 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 the use of the latest fintech by lenders 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 need to use every advantage to remain competitive and profitable.
Using increasingly sophisticated means, fraudsters leverage the Internet to acquire fraudulent documentation to misrepresent their employment and incomes in order to acquire auto loans and vehicles. While we’ve discussed one of the more prevalent fraud schemes in this blog, there’s more in The Hidden Patterns of Auto Lending Fraud Revealed webinar.
defi SOLUTIONS offers solutions for a lender’s complete loan or lease lifecycle. Partnering with captives, banks, credit unions, and finance companies, defi’s market-leading solution helps lenders exceed borrower expectations. From digital engagement through the complete lending process, defi sets new standards for flexibility, configurability, and scalability in originations, servicing, and managed servicing. defi SOLUTIONS has the backing of Warburg Pincus, Bain Capital Ventures, and Fiserv. For more information on employment verification fraud and how defi can help, please visit www.defisolutions.com.