More criminals are deploying "synthetic" identities and fake employers to secure auto loans through fraud, said Frank McKenna, co-founder and chief fraud strategist at risk management firm Point Predictive. Here is a closer look at both types of fraud.
Synthetic IDs, phony employers among auto borrower fraud trends
Risk management firm Point Predictive said it sees thousands of synthetic identity scenarios every month.
Traditional identity theft involves a fraudster posing as a specific party. However, synthetic identity fraud entails a completely phony persona generated with a "hodgepodge" of details, such as one person's Social Security number, another party's name and an address unrelated to either, said McKenna, whose company uses artificial intelligence to flag potential fraud.
"That's growing like crazy," he said.
The fraudster will apply for credit and begin generating a credit history, potentially bolstering that pedigree by adding the fake identity as an authorized user to an unsuspecting person's credit card.
Point Predictive sees thousands of synthetic identity scenarios "every month," McKenna said, possibly accounting for $1.2 billion in fraud alone.
Criminals will search the country for potential dealer targets. "Houston's a hotbed" of fraud cases, he said.
The Houston Police Department has a unit devoted to investigating fraud at dealerships, according to McKenna, who referenced an investigator there as "having the busiest year of his life."
McKenna said Point Predictive has found numerous phony employers — "new ones every week" — staffed to answer phone calls and lie about a borrower's employment status. A phony workplace also might have a fake website to lend credibility.
"That's a huge trend right now for the industry," McKenna said of fake employers.
In an identity theft situation, "the dealer always takes responsibility," according to McKenna. The retailer must eat the loan.
However, lies about income and employment fall upon the lenders, he said. He estimated lenders absorb about 70 percent of fraud costs and dealers the rest.
A dealer's lack of diligence can have ramifications. After too many fraudulent borrowers, the lender "will terminate [its relationship with] that dealership and move on," McKenna said. And a retailer who loses one vehicle to fraud would have to sell 10 to recoup the lost profit, he said.
McKenna linked about $7.3 billion worth of auto loans annually to fraud, calling it a "really big number" that has been rising each year. The COVID-19 pandemic has led to a "pretty sharp increase in fraud attempts," he said.
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