Especially in the past few years, compliance has been on the minds of dealers and lenders. But at least one fraud type has been largely overlooked, and it's costing hundreds of millions of dollars in losses annually across the credit industry, Experian says.
Synthetic identity fraud is "flooding" the identity-fraud space and it's directly affecting the auto industry, said Keir Breitenfeld, a senior business consultant at Experian in the areas of fraud and identity. Experian partnered with financial services analyst CEB TowerGroup on an an insight brief that explains synthetic identity fraud and the best ways to fight it.
Synthetic identity fraud occurs when a criminal combines real and fake information to create a new identity to open fraudulent loan accounts and make fraudulent purchases.
Most dealers tend to think of car sales more than fraud, Breitenfeld said. They're "much more concerned about getting the loan through and getting the customer into a vehicle."
Many dealers perform the basic identity verifications that are required, but those precautions are likely not enough to prevent synthetic ID fraud.
Synthetic identity fraud is first started by a data breach. The fraudsters use the information obtained from the data breach to create the synthetic identity.
"We are hearing a lot [of concern] from our clients in the auto lending space, a much higher level of concern in the last 12 to 24 months," Breitenfeld said. He didn't cite specific data on how widespread the problem is, because it often goes undetected.
Multiple types of identity fraud have risen since the rollout of credit cards that use chips to store data, Breitenfeld said. Before chips, criminals targeted traditional credit and debit cards. Now, though, with chips making those cards more secure, "fraud schemes have shifted toward identity," he said. There is still not enough awareness of synthetic ID fraud among lenders, which gives criminals a clear path to commit the fraud.