Credit washing, a major fraud concern before the COVID-19 outbreak, was put on the back burner by government forbearance efforts that preserve customer credit profiles from the negative input of late vehicle payments.
But fraud experts fear the practice, in which scammers claim to be identity-theft victims and request to expunge legitimate tradelines from their profiles, could return in force after the crisis.
Erasing this data from a credit portfolio strips lenders' ability to judge a customer on their full credit history.
Lee Cookman, TransUnion's director of product strategy of global fraud and identity solutions, said that before the pandemic, credit washing was a growing fraud risk to auto lenders.
Tradelines deleted from consumer credit reports under suspicion of fraud fell 44 percent from March to April. Auto loans and leases deleted for that reason fell 41 percent during that same time frame, TransUnion said, and were down 42 percent year over year in April.
Double-digit declines continued in the second quarter, with 36 percent fewer auto loan and lease accounts wiped because of fraud compared with second-quarter 2019.
The future performance of auto loans in payment-deferral status remains a mystery for lenders. As customers exit financial-hardship status and their auto loans go sour, the bureau could see a rise in credit-washing attempts.
Rates of disputed and deleted tradelines will continue to fall as the pandemic continues, but Cookman believes they could rise when forbearance agreements end.
"Is some of the first-party fraud potentially shrouded in the financial accommodations? They could be," he said. "We may be at the beginning of that curve for those to start getting uncovered."