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.

As technology continues to advance, so do fraudsters’ methods. With the rise of digital auto loans, criminals have more room to exploit loopholes and take advantage of unsuspecting lenders and dealers. So, what is auto loan fraud? Why is it important for lenders to proactively fight this issue? In this blog, we’ll break down how you can take steps to limit the risk of car loan fraud at your bank or credit union.

Auto Loan Fraud: The Current Reality 

Auto Loan Fraud

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. 

The most recent Point Predictive report shows even more harrowing auto loan fraud statistics. According to the 2023 report, 1 million new auto loan fraudsters have become active since 2020. In 2022, the auto lending sector encountered an origination risk exposure exceeding $8.1 billion, marking a $400 million uptick from the preceding year. Plus, over 10,000 fictitious employers were linked to an astounding $3.1 billion in fraudulent loan applications. There has been a 45% increase in identity theft and synthetic identity fraud since 2018, taking the total identity risk to $2.3 billion in 2023. 

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.

  1. 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.

  1. 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. Digital transformation is redefining the finance world, including credit unions, so it’s imperative to follow suit. 

  1. 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 auto loan 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.

What is auto loan fraud?

Auto loan fraud is a type of financial crime where an individual or group intentionally provides false or misleading information to obtain an auto loan. The information may pertain to the borrower’s identity, income, employment status, credit history, or other relevant factors. 

What are the red flags for auto loan fraud?

Some common red flags for auto loan fraud include suspiciously high income for the borrower’s job title, inconsistent employment history, multiple loan applications in a short period, and providing false or incomplete information on the loan application. Any attempts to hide a negative credit history or use fake documents can also be considered red flags.

How do I report auto loan fraud?

If you have been a victim of auto loan fraud, you can report it to the FTC and your state’s attorney general. Alternatively, you can report it to the consumer protection agency

How does loan fraud happen?

The perpetrator of auto loan fraud may use different tactics to deceive the lender, such as providing false information on the application or using stolen identities and fake documents. The goal is usually to obtain a loan with favorable terms, such as a lower interest rate or a larger amount, which the borrower may not qualify for otherwise. 

What are the common types of auto loan fraud?

The most common types of auto loan fraud include income misrepresentation, identity theft, yo-yo financing scams, credit score scams, and straw buyer scams

What are the consequences for individuals caught committing auto loan fraud?

The individuals involved in auto loan fraud, including the perpetrator and any accomplices, can face serious legal consequences such as fines, imprisonment, and a damaged credit score. They may also be required to pay back the full amount of the fraudulent loan. 

Are there specific regions or states where auto loan fraud is more prevalent?

Auto loan fraud can happen anywhere, but there are certain regions or states where it may be more prevalent due to various factors such as consumer demographics and lax regulations. According to Forbes, California is the fraud capital of the U.S., followed by Florida, New Jersey, Texas, Georgia, and Arizona, respectively.