Dealers, have your stores ever let enthusiasm for a sale outweigh their desire to complete due diligence on a credit application or follow up on a nagging feeling that "something is not right" about a seemingly perfect deal?
If you were lucky, the loan application was approved and payment satisfied. But what about the times the buyer almost immediately defaulted, despite having some of the best income and FICO scores the dealership had seen in weeks, if not months? That may well have been a case of fraud, one of dozens or hundreds orchestrated by an individual or ring that affects your dealership and perhaps dozens of others.
"You need to really look closely at deals, analyze them," said National Insurance Crime Bureau Senior Special Agent Mike Kelso, based in Chicago. "Does it make sense that a doctor who has lived his life in Virginia is suddenly in Chicago and buying a car that will be shipped from California? We have dealers that make those deals and [when they prove fraudulent] always say, 'I didn't know.' Dealers are hungry. We all understand that. But if it seems too good to be true, it likely is."
Point Predictive, a San Diego company specializing in fraud detection, estimates the annual value of auto loan originations that contain some element of misrepresentation may be as high as $6 billion this year, twice the annual value estimated for 2016 originations.
Most dealerships work hard to ensure that misrepresentations of income, employment or credit don't get by. Defaults can damage their financing relationships with lenders. And when a customer skips with the car before a lender buys the paper, the dealership takes the out-of-pocket hit.
But fraudulent schemes exist that can trick even the savviest F&I manager. Some schemes rely on phony call centers set up solely to verify fraudulent information. Scammers also use synthetic identity fraud to combine authentic and false information that enables them to secure vehicle purchases. The Internet is also a fertile marketplace that enables visitors to buy unimpeachable identities that can be used for scams. Such thefts often go unnoticed for a long time, experts said.
"We know that because you have billions of identity records breached every year; there were more than 4 billion breached in 2016. That has created a very easy path for the perpetration of more organized attacks using identities true or synthetically fabricated through a convergence of many factors," said Keir Breitenfeld, senior business consultant at Experian, which has cyber experts who continually scour the dark web for such transactions. "That's where a fraudster might say, 'I will buy this person's identity and passwords.' The more detailed the information, the more valuable it is," Breitenfeld said.
And with upward of 4,000 new stolen identities hitting the dark web each month, it's a buyer's market. Scammers can easily buy information with specific characteristics — such as middle-age adults with FICO scores of 750-plus and incomes of $100,000 living in a specific ZIP code — so they can hit multiple dealers and merchants in one area.
'Dig deeper'
The scammers often recruit straw buyers, in many cases individuals who look the part of those identified on driver's licenses and credit reports, to transact the deals, usually on high-end vehicles.
Stolen identities are often used multiple times, said Kelso. "There were 14 attempts to use the [stolen] credit of one doctor in Pennsylvania," he said. "That's a lot of work, but they kept going and eventually got an $85,000 Porsche."
Not all scammers need to use elaborate subterfuge, especially if they find weak dealerships. Experts note many dealerships accept identification that doesn't clearly show the person's face. Such shoddiness hamstrings investigators who can't use facial recognition to track down the scammers.
"It's vital to dig deeper on the information, to get a sense of the behavior associated with that identity," Breitenfeld said. "If you only do basic verification of data, you miss the rich information data histories provide."
Those histories provide everything from credit and property ownership to permanent addresses, past employers and other specifics that can signal a red flag. Outside specialists can complete the extensive checks without triggering ill will on the part of a potentially legitimate customer.
One way to distinguish fake verification of employment and income is to get the information directly from employers, said Lou Loquasto, auto finance leader for Equifax. His company does that. He said there's also a push to capture alternative data through checking accounts.
"Just like the fraudsters are getting creative with fake pay stubs and call centers, the providers are getting creative in how do we get verified income, and how quickly, to the lenders and the dealers?" Loquasto said.
Some fraud is subtle, he added. "If someone is making $60,000 per year and they're saying they make $100,000 a year, even if it's a legitimate customer, that right there could be the difference in a performing loan and a charged off loan," he said.
Dealerships unaware
"This type of fraud is just becoming understood, and most dealers don't think it could happen to them," said Frank McKenna, chief strategist at Point Predictive. "We estimate that 67 percent of these types of fraud cases may not be known at the time the application is funded, and the car leaves the dealership. Some dealers don't realize if a fraud occurs the lenders can push the loan back and force them to pay. For every fraud that occurs, you have to sell 10 cars to make up for it. That can put you out of business."
Findlay Automotive Group, of Henderson, Nev., works hard to protect the company, CFO Tyler Corder says. The group, which has 32 stores in four states, sells vehicles from Jaguar, Lamborghini and Land Rover, among other brands.
"The paradox is that you want to sell a car but you also need to be very cautious and make sure you are selling it to a legitimate customer," Corder said, adding that multiple car purchases by one person; a disinterest in trim packages, options and colors; and skipping test drives are among the red flags. "We are very aware of what happens in [dealerships throughout the U.S.] and have ingrained in our people the need to protect the company first."
Hannah Lutz contributed to this report.
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