6 Insights into Auto Lending Fraud Trends
Point Predictive’s annual report on the state of auto lending fraud has implications for dealers and lenders. Here are six key takeaways. Request the full report here: 2023 Auto Lending Fraud Trends Report.
1. COVID stimulus resulted in up to 1 million new fraudsters
Point Predictive data indicates that up to 1 million new fraudsters became active in 2020, largely in response to COVID-era stimulus policies. As those stimulus programs ended, those same fraudsters pivoted toward auto financing fraud.
In Chicago in particular, Point Predictive investigators linked about 76% of synthetic identity auto loan fraud in 2022 – where fraudsters tied valid Social Security numbers to fabricated names, birthdates, or other data points – to identity information associated with PPP loans that were taken out the prior year.
2. Declining affordability has pushed more auto loan fraud
Since 2017, affordable auto financing has grown increasingly out of reach for many consumers. In 2022, tightened inventory, increasing vehicle values, and inflation pushed affordability to its lowest point ever recorded. Rising costs directly drive fraud risks, as some consumers may be tempted to fabricate portions of their applications to secure more favorable financing terms.
With the financial outlook worsening throughout 2022, the risk of fraud peaked at 152% of the baseline in November 2022.
3. Identity fraud is on the rise
The last year has marked a dramatic shift in auto lending fraud patterns, most notably an increase in identity-related fraud, including both identity theft and cases of synthetic identity.
Both lenders and car dealerships reported significant increases in the occurrence rate of true identity fraud and both first and third-party synthetic identity fraud attempts. Some dealerships that had never experienced a single case of identity fraud in their history reported being attacked with three or more cases a month.
4. Use of fake employers is skyrocketing
Synthetic identity fraudsters will often use shell companies tied to fake paystubs, fake employer websites and phone numbers that can be used to create bogus employment histories. Point Predictive fraud analysts have identified more than 10,000 such companies being circulated across the industry in the past 10 years, amounting to more than $3.2 billion in applications.
5. California and Chicago topped the riskiest places for auto loan fraud
Fraud ring activity made Fresno, California, and Hawthorne, California home to the highest rates of auto loan fraud in the nation. A Brazilian fraud ring operating out of San Pablo, California, meanwhile, was responsible for pushing that city to historic highs.
Chicago has long been a hotbed of fraud ring activity, but pandemic era fraud further contributed to the city being one of the nation’s riskiest locales.
6. Suspicious cases of credit washing increased by 70%
Point Predictive estimates that credit washing cases, where individuals make false claims about identity theft to have negative remarks removed from credit reports, increased to 51 basis points of application volume during 2022, up from 30 basis points.
To analyze the trend, Point Predictive’s data scientists took a large sample of loans with multiple applications and identified the occurrence rate of proprietary credit washing alerts that can highlight anomalies in loan application submissions.
The analysis showed a significant increase in the suspicious credit washing rate in 2022.
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