Recognizing Bad Actors

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The Association of Certified Fraud Examiners (ACFE) calls it the Fraud Triangle – pressure, opportunity and rationalization. But dealers and auto lenders 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.  

How can you keep your credit union – and your dealer partners safe? Keep an eye out for the traditional bad actors as well as the new tricks these bad actors are deploying.

During the early days of the pandemic, dealership doors were shuttered and consumers remained sheltered-in-place. The trend toward digital sales accelerated, with dealerships forced to conduct business online and via phone. For Group 1, one of the largest auto retailers in the nation, online-generated sales tripled in May compared to pre-COVID-19 usage.

An online-only platform means verifying financial details and detecting fraud before the deal is passed to the lender has become more challenging. 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 dealers and lenders. 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.

How can credit unions and their dealer partners shut the door on these bad actors? Rely on the tried and true measures, and invest in training to keep everyone up to date on the latest tricks. Encourage your dealer partners to offer a refresher training on the use of the OFAC List and Red Flags Rule requirements. Ask if your dealers are using the latest automated fraud detection systems. While they might not catch every instance, these tools are still useful.  Encourage your dealers 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 dealer partners. 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.

Credit unions began 2020 with a positive outlook, with auto loan penetration among members growing 4.1 percentage points from Q1 2019 to Q1 2020. And vehicle sales at the end of Q2 showed some positive momentum as shelter-in-place restrictions across the country eased. Don’t let these two positives turn into an overall negative with a bunch of fraudulent bad actors. Work with your dealer partners and keep everyone safe.