Auto Loan Fraud: WFD’s Guide to Combatting the Growing Issue
By: Web Finance Direct
Auto loan fraud has been growing exponentially in recent years, especially here in the U.S. where it is considered to be detrimental. As we head into 2023, loan fraud, especially in the digital space, is expected to continue its rise. For both lenders and dealerships, the risk of selling to consumers who use fake identification methods can have severe consequences if not taken seriously. So, what is auto loan fraud? Why is it important for lenders to proactively fight the issue? In this blog, we’ll break it down, focusing on how you can take better steps to limit the risk of car loan fraud at your bank or credit union.
Auto Loan Fraud: The Current Reality
Loan fraud is a financial crime that involves the intentional misrepresentation or omission of key information in the hopes of having a loan application approved. Think fake I.D. cards or applicants providing false information on their car loan application—from wrong addresses to even fabricated employment information or social security numbers. Fraudsters are becoming more sophisticated in their ways as technology advances, so it is important for dealerships and lenders alike to take preventative measures, as fraud can have a negative impact on financials and reputation, which may make it harder to improve client retention.
According to a 2022 industry report from Point Predictive, lenders are estimated to have endured over $7.7 billion in auto loan fraud because of misrepresentations during the 2021 financial year. This amounts to a staggering 5% increase from the 2020 fiscal year and as it currently stands, things are not expected to slow down in the U.S. Point Predictive found in the same report that 1 in 5 lenders surveyed said loan fraud was a serious issue. During the 2021 year, over 16,641 loan applications appeared to show characteristics of employment fabrication, income manipulation, and more. So, how can lenders combat this worrying rise in fraud? Expanded loan application screening is only the beginning.
How Lenders Can Fight Against Loan Fraud
Although stricter financial regulations are in place, it is still easy for fraudsters to find loopholes. A reason for this is that a paperwork-heavy system for processing loans is still widely used, giving fraudsters the ability to tamper with documents and fabricate key information under the radar. At the same time, however, the ever-evolving tech world has presented fraudsters with another medium to target businesses. Now more than ever, lenders need to have a strong defense in place to minimize the risk of auto loan fraud.
- Start with an Improved Screening Process
This is a big one. For lenders to properly combat loan fraud, an expansive screening process is a great first step. Don’t operate with the mindset that fraud can’t touch your bank or credit union. Many times, fraud will strike at the worst possible time.
- Increase the Use of Technology
From AI to biometrics, there are many options available for lenders to leverage. As fraudsters continue to evolve, it is crucial to have technology that can accurately detect fraud before a loan is finalized.
- Enhanced Collaboration with Law Enforcement
If your bank or credit union does become a victim of fraud, make sure to report it to the proper authorities and play an active role in the investigation. With more collaboration can come a better understanding of how to shift focus in how to find suspicious loans before they become a problem for lenders and dealers.
Fighting Loan Fraud Through Indirect Lending
Another way lenders can actively combat fraud is through the indirect lending process. By partnering with a company like Web Finance Direct, lenders can give themselves another set of eyes to analyze applications that may have suspicious elements to them. We carefully vet each application on our end through two forms of I.D verification to make sure fraudulent activity is caught before any deal is closed. Our in-depth system will also alert you to fraud risks in your area. It’s just one of the many perks of becoming a part of our lender network.
Not only can indirect lending help your bank or credit union prevent fraud, but it can also help you find new, qualified members and offer more loans across a range of industries—including auto, RV, and marine. If you’re looking to learn more, contact us today to get in touch with our team of experts. You can also check out our lenders’ page to read more about the many benefits of partnering with Web Finance Direct.
How is fraud committed in an auto or RV loan application?
Loan fraud can be committed in several ways, with identity theft and income falsification being two of the most common.
What is considered a predatory loan?
Predatory loans are designed to be unfair to borrowers. Oftentimes, these loans will include terms and conditions that make it easier to go into debt, such as high-interest rates, hidden fees, and more.
Can a bank or credit union reverse a car loan?
In general, loans are difficult to reverse. In the case of loan fraud, however, a bank or credit union can take steps to reverse it. If you believe fraud was committed, it’s crucial to report your finding as quickly as possible.
Who is responsible for card-not-present fraud?
Card-not-present fraud, which involves payments with stolen cards that are not physically present. Typically, it is the dealership’s responsibility to prevent this, but banks and credit unions with limited fraud detection can also be at fault.