Dispatching loans has been challenging for auto lenders over the past several years. As vehicle ownership has increased, so has auto loan fraud which lenders have been trying to combat. From an outside perspective, it might look like a case of bad customer advice from the dealer or financing company resulting in disparities and branding it as fraud. However, car finance fraud can be much more complex when wrongful and fraudulent income, employment, identity, or collateral data is used in the application process.
In 2020, US auto loan fraud reached $7.3 billion from $2.1 billion in 2010.
Many consumers need financing for their next car purchase, which is why auto financing companies are popular. There are, however, deceitful consumers out there that pose as legitimate consumers in a bid to defraud the lenders. A recent instance of fraud in the auto lending industry involving 340 applications, which resulted in fraud amounting to $5.5 million, showcased the impact fraudsters could have on the industry. A growing trend of such incidents in the last decade has exposed the vulnerability of the auto lending application process to fraud. The fact that most loans are dispatched through dealers has compounded the problem.
One of the primary reasons auto lending is exposed to fraud is the heavily paper-based application process which also entails offline exchange of identification and financial data of the borrower. Synthetic identities are created by modifying social security numbers, and in other instances, financial data is misrepresented to create fraudulent applications. Falsified information originates from the consumer directly or the dealer.
Auto Loan Fraud Takes Many Forms and Shapes
An auto loan fraud is committed when identity, financial, or credit-related information is deliberately or inadvertently misrepresented in order to obtain a vehicle loan. Here are some of the methods in which auto loan fraud could be committed:
Document Fraud: Document fraud occurs when consumers provide false information in their KYC documents, such as income, income source, residency, or employer, to either obtain credit or borrow more than they are eligible for.
Identity Theft: Identity theft occurs when fraudsters use stolen identities to take out auto loans in the names of individuals with good credit. Theft of this type usually occurs through organized crime groups and results in massive losses.
Synthetic Identity Fraud: Fraudsters create new identities using both fake and real information to establish a new credit bureau record that conceals their true identity and credit history. Fraudsters usually create new credit profiles by fabricating Social Security Numbers or stealing SSNs of inactive profiles. Professional criminals usually use this method to obtain money through auto loan disbursements fraudulently.
False Collateral Claim: Fake bank statements or other collateral such as deposits are often provided by dealers or fraudsters to ensure that the auto loan application is approved.
With foolproof identity checks, auto lenders could prevent auto loan fraud. Automating the information retrieval and identity verification process is a critical step to ensuring success in fraud detection.
Auto-filling Forms Can Thwart Identity Takeover Fraud and Improve Onboarding Experience
Ideally, a digital loan onboarding solution should look for ways to reduce manual processing by consolidating parts of the process that may be redundant by auto-filling verified data and automating identity verification. For auto loans, PII data is required to auto-fill an application. With consumer consent, an ideal onboarding solution would automatically populate onboarding forms with verified PII data from trusted sources. In addition to accelerating form-filling, auto-fill detects and flags PII data mismatch, thereby stalling potentially fraudulent applications. At the same time, genuine applications can be automatically green-lit with a higher level of confidence, resulting in better conversion rates. Auto-filling vehicle loan applications significantly reduce the number of applications that need to undergo manual scrutiny resulting in both efficiency gains and reduced operating costs.
Prove Pre-fill™ radically transforms the digital onboarding process. It leverages the power of phones and phone numbers to modernize onboarding experiences by delivering authenticated digital identities and verified data to supercharge application velocity while mitigating identity fraud. Leveraging the principles of Phone-Centric Identity™ and adopting the PRO Model™ of authentication and verification, Pre-fill ensures possession of the phone, reputation of the phone number used while onboarding, and ownership of the phone against verified personal data. Furthermore, as opposed to the traditional approach of fetching potentially stale data from legacy data sources for KYC purposes, Pre-fill taps into multiple sources to perform a multi-level reinforcement of identity verification and fraud check.
Using Pre-fill, a tier 1 US card issuer saw a 15% boost in sign-ups and 93% of consumers opting to auto-fill their applications. A high majority of those that opted out of auto-fill were fraudsters.
Prove Pre-fill can not only make the auto lending application process frictionless but can also reduce OPEX significantly while reducing incidents of synthetic identity fraud.
Keep reading
Developers know identity verification is an essential element of effective digital onboarding and the customer lifecycle. Choosing the right one can feel like navigating a maze of features and complexity.
In an age where our smartphones have become almost like extensions of ourselves, the identity assurance achieved through smartphone possession and data is a natural evolution.
Rodger Desai, CEO of Prove, a leading identity verification solution provider, offers a unique perspective on the rising fraud in the gig economy, advocating for robust digital identity verification as a key defense mechanism.
