Guest commentary: Fraud prevention across the car-buying journey

Summer is peak car-buying season and fraud prevention is top of mind for auto retailers dealing with the sales surge.

As cyberattacks become increasingly prevalent and continue to make headlines, hackers are leveraging stolen information and synthetic IDs to falsify identities for big-ticket purchases. Synthetic ID fraud involves creating a fake identity by combining real and falsified information and is particularly hard to detect because it allows fraudsters to build a credit history that does not directly affect the individuals whose information is being used. This highly sophisticated form of fraud is jeopardizing almost $8 billion in auto loan exposure annually.

The rise and impact of fraud in the automotive industry has significant implications for both consumers and auto retailers. Incidents of fraud can lead to irreparable damage to auto retailers' brands and businesses, making it imperative to combat fraud across each step of the car-buying journey.

Automotive fraud is a growing and complex challenge because the transactions often are high value, easy to transport and harder to track than banking transactions. In 2023, synthetic ID fraud attempts against auto lenders increased by a shocking 98 percent. According to the FTC's Consumer Sentinel Network Data Book 2023 and Point Predictive's 2024 Auto Fraud Trends Report, there were more than 2.6 million fraud reports submitted in 2023, amounting to $7.9 billion in auto loan fraud exposure for top U.S. auto lenders.

More consumers have shifted to making their vehicle purchases online rather than in person. While a variety of factors contribute to the recent increase in fraud incidents, online transactions give criminals new opportunities to exploit vulnerabilities in digital dealership platforms.

In a recent multipayer scam after a "legitimate" vehicle purchase was made, a network of synthetic identities paid the loan off online with credit cards issued to the synthetic identities, resulting in a loss of $240,000 for the lender and credit card company. These losses go beyond the initial sale by affecting F&I aftermarket products, as well as hurting dealerships' relations with lenders and insurance providers that are counting on them to do their due diligence to reduce their risk as well.

Synthetic ID fraud can cause back-end F&I products to become chargebacks, hurting a dealership's bottom line and inevitably damaging relationships with both lenders and customers. The stakes are high for auto retailers, making it crucial to take proper precautions and implement effective fraud prevention measures.

Leveraging fraud detection technology is the easiest way for dealerships to prevent incidents. Dealerships have historically been hesitant to implement this technology because they have found fraud detection solutions to be hard to use. However, recent technological advancements such as integrated ID verification, fraud risk indicators, synthetic ID alerts, multifactor authentication for remote signing, compliance monitoring and dashboards make fraud prevention easier than ever. Equifax and Cox Automotive's Dealertrack recently partnered to ensure dealerships are aware of the latest fraud prevention measures across every step of the car-buying journey, including how to deal with illegally obtained credit privacy numbers, car stacking, multipayer scams and test drive and loaner car thefts.

In addition to implementing the latest technology, dealerships also should prioritize customer document verification to confirm identities. This will not only diminish the risk of fraud but also establish trust with dealership customers. The more layers of verification in place, the greater the chance of catching fraudsters before they strike.

Auto retailers who are educated about synthetic identity fraud and a fraudster's ability to create fake identities can identify red flags more confidently and take protective measures.

The looming threat of synthetic ID fraud has substantial ramifications for both dealerships and consumers. As summer car-buying begins to peak, auto retailers who take proactive steps to reduce fraud will protect their businesses, maintain consumer trust and preserve key relationships with lenders and insurance providers. By implementing the right technology and taking proper precautions, fraud prevention can seamlessly integrate into the car-buying journey, safeguarding all parties involved.