Different forms of fraud are rising in the auto industry and are presenting lenders with challenges as fraudsters continue to grow smarter, Frank McKenna, chief fraud strategist at artificial intelligence solutions provider PointPredictive, told Auto Finance News.
Using machine learning, PointPredictive ran fraud models on funded originations from 2012 through 2018 and found that the underlying rate of fraud risk had increased to an average fraud score of over 665 from 500 — an increase of over 33%.
“It depends on the lender, but it’s definitely rising in all of our models,” McKenna said. “There are always these new hot types of fraud trends, but it’s still income employment that is tripping up the lenders in terms of causing them the most pain. But we do see an increase in types of fraud like synthetic identity.”
Synthetic identity is when fraudsters create a new identity in order to obtain credit, and it has jumped in activity in the auto industry, growing to $504 million in 2017 from $143 million at the end of 2012, according to data collected by TransUnion.
“There’s impound fraud that’s rising, as well,” McKenna added, citing a case that Santander Consumer USA experienced in Florida wherein the lender needed to develop a new strategy to deal with losses from impound lots.
Lenders are also experiencing more sign-and-release fraud, which is when a consumer is solicited to participate in an investment by letting a fraud ring use their credit to obtain cars — typically seen in rideshare weekly leasing deals. The borrower is often promised that they will get a certain amount every month based on the payments that are made by the subleasers. However, the subleasers never make the payments, resulting in the lender losing money and the borrower ruining their credit.
McKenna believes fraudsters have only just scratched the surface of the types of fraud out there — “It’s just going to keep going up.”
Source : AutoFinanceNews
