Major auto lenders late last year reported an overwhelming influx of complaints from customers reporting identity theft. The claims, however, were fraudulent and part of a widespread scheme to prompt auto lenders to remove legitimate trade lines from those customers' credit reports — a practice known as credit washing or credit repair fraud.
Credit washing is among the top three fraud concerns for auto lenders this year, along with systemic fraud activity from dealers and synthetic identity fraud, which occurs when criminals cobble together real and fake personal information to make fraudulent purchases, according to PointPredictive, a San Diego company specializing in fraud detection.
Three auto lenders reported four times more credit washing cases coming into their fraud departments starting last fall, said Frank McKenna, chief fraud strategist at PointPredictive. The company would not disclose which lenders were impacted, because of nondisclosure agreements.
Overall auto lending fraud risk has risen at least 38 percent in the last seven years, according to PointPredictive's analysis of more than 70 million historical auto loan applications. PointPredictive forecasts that the annual value of auto loan originations that contain some element of fraud will hit $7 billion this year. Last year, it reached $6.7 billion.
Each lender could incur between $20,000 and $30,000 in losses for a vehicle when credit repair is fraudulent, but the damage could multiply if the fraudster returns to steal another car.
Though they are likely in the minority, McKenna said, some dealerships work with credit repair agencies to promulgate fraudulent activities, such as credit washing and synthetic identity fraud. "This is a segment of high-risk, unscrupulous dealerships that maybe had a bad person," McKenna said. "They were basically helping, aiding or abetting synthetic identity fraudsters get through the system."