Articles
05.12.2021
When First We Practice To Deceive . . . Automotive Loan Fraud On The Rise
Lies are at the root of this growing crime of individuals swindling the car dealers and lenders. For decades automotive dealers and their employees have endured an undeserved reputation as deceptive swindlers. In fact, when it comes to trustworthiness, the ranking of a car salesperson falls just below that of a politician. The time has come to change that perception.
State and federal laws have long since been in place to protect consumers and dealers alike from deceptive practices. And for more than 30 years the industry has been diligent to put systems and processes in place that increase legal compliance and consumer confidence and shed that age-old reputation. Organizations like AFIP, the Association of Finance & Insurance Professionals, founded in 1989, offer legal and ethical training and compliance for the automotive industry.
Given that, let’s turn our attention to some serious facts about the real deceit plaguing the industry. Here’s what is actually going on; There is a growing number of consumers, thieves really, that are ‘swindling’ the dealers through loan fraud. As reported by Frank McKenna, Chief Fraud Strategist for Point Predictive, “2020 was a pivotal year for fraud risk, with auto loan fraud reaching $7.3 billion of originations”.
The three main types of fraud with automotive loans are: 1. Identity theft, when a person steals the identity of another and attempts the purchase of a vehicle with the false identity; 2. Application fraud, when the customer misrepresents their employment, income or obligations in order to get the car loan; and 3. Power booking, the fraudulent practice of a dealership to inflate the value of a vehicle with added equipment to increase the loan advance.
With the advent of AI and machine learning, today’s technology is making it easier than ever for the public to defraud a dealership and a lender. Running a search on Google for ‘fake pay stubs for free’ will return 11,500,000 results! Simply fill in the blanks & voila - instant pay stubs to present to the dealership Finance Manager. Pay stubs satisfy one of the stipulations required for many consumers to get a car. And while it is the responsibility of the dealership personnel on the front line to verify proof of income, a pay stub often fills that need. When the documents are forwarded to the lender, the onus is on them to further ensure the veracity of the client information.
However, according to an article in Automotive News, the lenders are realizing big losses and are turning back to the dealer to reclaim some of the losses. Within each automotive loan document is the “Representations & Warranties” section. This section outlines the responsibilities of the customer and dealer to ensure the accuracy of the information. This is why franchise and independent dealers are always on the lookout for quality Finance Managers that will protect the dealer’s assets through thorough due diligence and proper process.
HOW TO REDUCE THE RISK OF AUTO LOAN FRAUD
The best strategy to reduce loan fraud at your dealership is two-fold. First, don’t shortcut training for the F&I department. The most profitable department in the store deserves the best legal compliance training a dealer can afford. Organizations like AFIP, the JM&A Group, and a host of others are renowned for educating Finance Managers on the state laws, ethics and best practices to reduce the risk of fraud happening at your store and reduce your exposure to buy backs and losses.
Second, most dealerships can now afford to employ cutting-edge technology like Automatic software, which, in addition to streamlining the entire loan approval process, has intelligent insights on underwriting compliance designed to flag for potential fraud. The result for the dealer is more than peace of mind; it is a critical necessity that delivers an efficient, legally compliant way to mitigate risk and diminish exposure to fraud.
Automatic is a leading automotive fintech platform serving independent dealers by providing fast, automated, secure and transparent solutions, enabling your customers to enjoy their vehicle more quickly with a seamless customer journey. Learn more at https://www.automaticusa.com/
Articles
When First We Practice To Deceive . . . Automotive Loan Fraud On The Rise
05.12.2021
Lies are at the root of this growing crime of individuals swindling the car dealers and lenders. For decades automotive dealers and their employees have endured an undeserved reputation as deceptive swindlers. In fact, when it comes to trustworthiness, the ranking of a car salesperson falls just below that of a politician. The time has come to change that perception.
State and federal laws have long since been in place to protect consumers and dealers alike from deceptive practices. And for more than 30 years the industry has been diligent to put systems and processes in place that increase legal compliance and consumer confidence and shed that age-old reputation. Organizations like AFIP, the Association of Finance & Insurance Professionals, founded in 1989, offer legal and ethical training and compliance for the automotive industry.
Given that, let’s turn our attention to some serious facts about the real deceit plaguing the industry. Here’s what is actually going on; There is a growing number of consumers, thieves really, that are ‘swindling’ the dealers through loan fraud. As reported by Frank McKenna, Chief Fraud Strategist for Point Predictive, “2020 was a pivotal year for fraud risk, with auto loan fraud reaching $7.3 billion of originations”.
The three main types of fraud with automotive loans are: 1. Identity theft, when a person steals the identity of another and attempts the purchase of a vehicle with the false identity; 2. Application fraud, when the customer misrepresents their employment, income or obligations in order to get the car loan; and 3. Power booking, the fraudulent practice of a dealership to inflate the value of a vehicle with added equipment to increase the loan advance.
With the advent of AI and machine learning, today’s technology is making it easier than ever for the public to defraud a dealership and a lender. Running a search on Google for ‘fake pay stubs for free’ will return 11,500,000 results! Simply fill in the blanks & voila - instant pay stubs to present to the dealership Finance Manager. Pay stubs satisfy one of the stipulations required for many consumers to get a car. And while it is the responsibility of the dealership personnel on the front line to verify proof of income, a pay stub often fills that need. When the documents are forwarded to the lender, the onus is on them to further ensure the veracity of the client information.
However, according to an article in Automotive News, the lenders are realizing big losses and are turning back to the dealer to reclaim some of the losses. Within each automotive loan document is the “Representations & Warranties” section. This section outlines the responsibilities of the customer and dealer to ensure the accuracy of the information. This is why franchise and independent dealers are always on the lookout for quality Finance Managers that will protect the dealer’s assets through thorough due diligence and proper process.
HOW TO REDUCE THE RISK OF AUTO LOAN FRAUD
The best strategy to reduce loan fraud at your dealership is two-fold. First, don’t shortcut training for the F&I department. The most profitable department in the store deserves the best legal compliance training a dealer can afford. Organizations like AFIP, the JM&A Group, and a host of others are renowned for educating Finance Managers on the state laws, ethics and best practices to reduce the risk of fraud happening at your store and reduce your exposure to buy backs and losses.
Second, most dealerships can now afford to employ cutting-edge technology like Automatic software, which, in addition to streamlining the entire loan approval process, has intelligent insights on underwriting compliance designed to flag for potential fraud. The result for the dealer is more than peace of mind; it is a critical necessity that delivers an efficient, legally compliant way to mitigate risk and diminish exposure to fraud.
Automatic is a leading automotive fintech platform serving independent dealers by providing fast, automated, secure and transparent solutions, enabling your customers to enjoy their vehicle more quickly with a seamless customer journey. Learn more at https://www.automaticusa.com/