Auto lenders are taking an increasingly hard-nosed approach to identity theft fraud, and dealerships are feeling the heat.
Lenders are enforcing the letter of the law, legal experts and dealership vendors say. Sometimes that means more aggressively making dealerships buy back deals gone bad, especially in cases where the buyer was likely an identity thief and — in the lender's view — the dealership's finance and insurance office didn't do an adequate job of verifying the customer's information.
Buybacks for identity theft are nothing new, but lenders facing big losses on bad loans have become more aggressive about enforcing the "representations and warranties" commonly listed in dealership agreements, which include wording that makes the dealership responsible for customer data being accurate, experts said.
"Lenders are now coming around with even tighter language in the dealer agreements making them liable for ANY shenanigans," Mike Jarman, CEO of dealership vendor TurboPass Corp., of Austin, Texas, wrote in an email, "especially if there's a repo or credit loss taken by the bank/lender."
He added, "Lenders have teams now scouring original documents, to bring back to dealers for relief." The TurboPass system allows the dealership's customers to go online and independently verify their own income and bank statement information, eliminating the need for the lender to demand verification.
"I would say identity theft is one of the top three risks dealerships face" in F&I compliance, said Gil Van Over, president of Gvo3 & Associates, of Crown Point, Ind., a specialist in dealership F&I compliance training.
The other two leading threats are closely related, Van Over said. One he called credit-application fraud, where the applicant's information is exaggerated to inflate their income or other qualifications. The other is "power booking," where the dealership inflates the value of the vehicle to justify a bigger loan, commonly by adding features and options the vehicle doesn't actually have.
Mike Green, CEO of Credit Bureau Connection, said many dealerships are poor gatekeepers and that lenders can't afford to leave things the way they are. "It's going to be the death of the car industry. They cannot keep taking bad paper from the dealerships," he said in a phone interview. Credit Bureau Connection works with dealerships on F&I compliance and credit reporting.