Study finds car loan identity fraud grew in 2022

Scammers who previously defrauded COVID-19 stimulus programs switched to target the auto finance industry in 2022, Point Predictive concluded in a fraud report released in June.

These schemes contributed to a 35 percent increase in auto loan identity and synthetic identity fraud last year, according to Point Predictive's 2023 Auto Lending Fraud Trends Report. Meanwhile, the more traditional scams of income and employment fraud and using straw borrowers all saw declines, Point Predictive said.

"2022 marked a dramatic shift in auto lending fraud patterns," Point Predictive wrote in the report.

Overall, auto lenders and dealers faced more than $8.1 billion in fraud exposure in 2022, up more than 5 percent from a year earlier, Point Predictive said. Its fraud team flagged more than 18,000 suspicious auto loan applications last year, up more than 8 percent from 2021.

"Some dealerships that had never experienced a single case of identity theft in their history reported being attacked with three or more cases a month," Point Predictive wrote.

Instead of stealing an identity, a synthetic identity fraudster poses as a fictional person for whom a credit history has been generated. A Point Predictive study of 287 synthetic identities used in auto finance applications in 2022 found 78 percent of those phony applicants had received stimulus funds in 2021 from the federal COVID-19 Paycheck Protection Program.

An estimated 1 million new fraudsters got their start in the pandemic, according to Point Predictive Chief Strategist Frank McKenna.

"They saw a big mountain of money," decided to commit fraud and "figured out the mechanics" of stealing or creating identities, he told Automotive News in June.

For dealers and lenders, synthetic identity red flags include randomized Social Security Numbers or numbers predating the applicant's birth, fake employers, employer phone numbers from Internet phone services, and home phone numbers matching a different name or Internet phone service, Point Predictive said.

Two other synthetic identity threats have grown in the past 18 months, Point Predictive said — the use of "zombie debt" and the misuse of data furnishing. Both techniques fraudulently improve the credit score of a synthetic identity or a real person with a weak credit rating.

McKenna said zombie debt is an issue that Point Predictive hadn't seen until now. The term refers to bad debt that's so old it is uncollectible and has disappeared from credit reports. A credit repair company will buy somebody's stale debt and resurrect it on the credit report of a customer as a "fully paid" item. Suddenly, thanks to zombie debt, the consumer appears to have a better payment history.

Data furnishing exploitation has been around for years but has recently become more popular, McKenna said. The scheme involves companies lying to credit bureaus that they've given a consumer a loan and are receiving payments or had the debt paid in full.

"Synthetic identity is an endless cat-and-mouse game," Point Predictive wrote. "Just as auto lenders catch on to one scheme and react, a new loophole in the system is identified by the mouse and exploited."

"Credit washing" — improving bad credit by pretending that negative credit report trade lines are the result of identity theft — also grew significantly in 2022, shooting up to 0.5 percent of applications from an estimated 0.3 percent. In fact, some lenders told Point Predictive they suspect up to 98 percent of their identity theft cases are really credit washing.