Auto Loan Fraud Exposure Exceeds $7.7 Billion in 2021
Auto loan fraud rose 5% year-over-year to $7.7 billion in 2021 as stimulus funds dried up and employment fraud, misrepresentation revenue and the use of synthetic identities have increased.
The pandemic “laid the groundwork” for increased fraud risk in 2021 as fraudsters learned to use falsified information and identities to benefit from unemployment and paycheck protection programs, predictive point Frank McKenna, Chief Fraud Strategist, said Auto Finance News. “Not a day goes by that you don’t read about someone who took advantage of [government] fraudulent programs,” he said. Point Predictive is a fraud and risk management platform provider for lenders.
As stimulus programs died down at the end of 2021, fraudsters looked for new ways to use their skills, McKenna said. “Car fraud is an area that these fraudsters started to tackle after trying to use these stolen identities or some of the synthetic identities they created.”
Synthetic identity fraud — the combination of real and fake identity information — accounted for $1.7 billion of total auto loan loss exposure, according to the “Auto Fraud Trends Report.” from Point Predictive in 2022. Straw borrowers, who do not disclose who a vehicle is actually purchased for, contributed $1.2 billion of total loss exposure in 2021.
The cost of employment and income fraud reached $4.7 billion, representing more than 60% of total fraud exposure in 2021, as borrowers misrepresented their identities to increase their likelihood of approval, according to the report. The dollar amount of loans tied to fake employers was $35 million in 2021, up from $7 million in 2019 when Point Predictive began tracking false employment claims.
The digital shift benefits fraudsters
Fraudsters have also taken advantage of the auto finance industry’s move toward digitization and automation, McKenna said. “If you’re a fraudster, you stay home in the middle of the night and apply 10 to 15 times, and if you’re turned down, that’s okay.” However, these fraudsters are less likely to introduce falsified information into a dealership, he added.
The combination of digitization and misrepresentation in 2021 led to the detection of fraud on more than 16,641 loan applications in 2021, a 260% year-over-year increase, according to Point Predictive analysts. The suspicious loan applications had a combined value of $309 million and included employment, income, identity and fictitious borrower fraud.
The influx follows Point Predictive’s December 2021 report that auto loan application fraud linked to fake employers topped $1 billion.
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