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Compliance Economy Industry Trends

Skipping Steps Is Never a Good Idea

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While the country is still in the grips of the pandemic, sales of new and used vehicles showed signs of life in May and June with big pickup trucks leading the way. For the quarter, analysts predict that car sales were off about one-third from 2019 levels, thanks in large part to plant shutdowns and shelter-in-place restrictions imposed in March and April. The economic stimulus CARES and PPP programs, along with enhanced state-level unemployment benefits, provided a bit of a boost in May, prompting consumers to consider purchasing a vehicle. Low interest rates and OEM incentives sweetened the deal. Savvy dealerships who pivoted to online and digital sales were able to capture the bulk of the upswing in June.

Q3 results hinge on several factors. Pandemic hot spots across the country could prompt local governments to return to some level of shutdown. Whether or not Congress provides a second round of stimulus could also have a dramatic impact on consumer confidence. And the U.S. unemployment rate could put a notable damper on both new and used vehicle sales.

Also, let’s not forget inventory concerns. Factories that shut down in March and April are just beginning to ramp up. There will be a noticeable delay in restarting the parts supply chain as well. Areas of the country that experienced strong sales in May and June could be faced with slim pickings on their lots.

But there is another – somewhat hidden – concern. Identity fraud has reared its ugly head. While fraud has always been an area of focus and concern in the retail automotive world, a couple of unique pandemic situations have exacerbated the situation.

  1. More transactions are happening over the phone or online.
  2. Whenever there is a rush to purchase a particular good or service, fraudsters use the cacophony to more easily hide within the masses, increasing their prevalence in the market.
  3. Dealership employees are under immense pressure to keep deals moving, thus increasing the likelihood of cutting corners.

Thanks to shelter-in-place mandates and a general reluctance to visit retail outlets once businesses open, many consumers are relying on online and digital sales for their vehicle purchase. But going online and getting a deal done quickly should not open the door to a fraudulent situation.

According to a recent report from Javelin Strategy & Research, total identity fraud losses reached $16.9 billion in 2019.  Account takeovers rose 72 percent in 2019, with the criminal taking over a full account in more than half of the instances. When taking over an account, criminals assume an identity with multiple account updates such as:

  • Changing e-mail addresses – occurs 30 percent of the time
  • Updating online passwords – occurs 27 percent of the time
  • Updating physical addresses – occurs 27 percent of the time
  • Obtaining a new payment card – occurs 25 percent of the time
  • Changing a PIN – occurs 21 percent of the time

Some combination of these examples is used to verify identity when purchasing a vehicle. With unemployment rates projected to remain high into 2021, falsifying employment data is an element of fraud that should be top-of-mind for F&I managers.

A U.S. Labor Department official recently testified to Congress that potentially $26 billion of unemployment benefits could be fraudulent. Many of the typical employment verification tools are stretched to the max and unable to keep up with the volume. Furloughed employees who have turned to the gig economy or side hustle jobs may not have a traditional pay stub or employment record. This creates an easy opportunity for bad actors to falsify employment data.

The Association of Certified Fraud Examiners (ACFE) calls it the Fraud Triangle – pressure, opportunity and rationalization. But dealers call it, “Yet one more thing to deal with during the pandemic.” As economic stressors continue and employees are increasingly burdened with coronavirus countermeasures, the risk of auto lending fraud slipping through the cracks grows.   

So, What’s A Dealer To Do?

The good news, reinforcing your existing good practices and refreshing your training for some of the unique online situations should put your dealership in a better position to stop fraud in its tracks.

Make sure your team is following each of the steps in the purchase process. When the customer is not sitting in your office, it’s easy to rush through the critical data collection steps that can put the brakes on a fraudulent purchase attempt. Resist the urge to gloss over details such as capturing a complete work history or residence details.

Pay close to attention to driver’s license images and signatures. Do they look altered or Photoshopped? Something as simple as enlarging the image on the computer screen can reveal critical details. Is the customer slow to respond when providing verification details online? This could be a red flag.

Rely on your tried and true steps and invest in training to keep everyone up to date on the latest tricks, including a refresher on the use of the OFAC List and Red Flags Rule requirements. Encourage your F&I managers to take the time to scrutinize every line of the credit application. Pay attention to any bulletins issued by local, state, and federal government entities and share that information with your team. Even little things such as a refusal to visit the dealership or meet in a safe, outside location should raise flags. One common mistake is not comparing the signatures on the paperwork with the signature on the driver’s license or ID provided.  In a recent review of bad deals, the signatures not matching came up again and again. When things don’t add up, a deeper dive is needed before proceeding.

Up Your Efficiency Quota

The pandemic has forced dealerships to focus precious time on new tasks including sanitizing showrooms, customer distancing, and traffic flow within the dealership. Managing paperwork hand-off, 6-feet-apart customer interactions, and enforcing mask requirements has become a critical component. Adding these steps on top of an already stressful sales process can reveal previously hidden inefficiencies.

Take a few minutes each day to reinforce training on each step of the process, and make sure everyone is aware of who does what and when. The details matter when the deals are flying fast and furious, efficiently completing the sale should be muscle memory. Whether the customer is online or in person, a well-defined process that is 100% adhered to is your best defense.