Point Predictive recently released their 2020 Annual Auto Fraud Report which delivers a level of insight never seen before in the automotive industry. The report highlights the severity of fraud in 2020 and how the pandemic continues to transform the fraud landscape.
Point Predictive leverages their consortium to identify industry level patterns. Information from over 94 millions applications gives them extremely unique insight into fraud, risk, and overall misrepresentation.
The full report is 40 pages long packed with data, behavioral trends, and recommendations to auto lenders. However, this post will only cover a fraction of these incredible discoveries.
Key Highlights of the Auto Fraud Report
Synthetic identity fraud continued to grow in 2020 with no signs of stopping. Data from the Point Predictive consortium showed an increase of 22% across lenders with overall exposure growing by 30%.
The report shows just one example of the risk that synthetics create. A single address was identified across lenders that had more than 650 identities tied with it.
One’s company, two’s a crowd, three’s a party, but 650 is a scam.
Income & Employment Fraud
Income and employment related misrepresentation look to be heavily correlated to unemployment driven by the pandemic. As expected. But what’s interesting is that as the unemployment rate decreased, misrepresentation didn’t.
Another startling number found in the consortium is the growth seen in employment fraud. The use of fake employers grew by 300%. It seems that this problem isn’t just a borrower issue either. Point Predictive has identified this as a growing problem at dealerships. Also known as employer recycling.
Credit washing is when a consumer falsely disputes tradelines on their credit report as identity theft. The review of this pattern in the consortium showed a 12% increase in credit washing cases in 2020.
On average, consumers who credit wash increase their FICO score by 124 points. They also have an average reduction in reported tradelines of 70%.
This can cause major concerns for lenders who rely primarily on the credit score. Decisions are made on manipulated history which leads to higher default risk.
Dealer & Collateral Risk
Fraud isn’t just perpetrated by consumers. It is also perpetrated by dealerships. Point Predictive has some alarming statistics regarding price inflation by dealerships, otherwise known as Powerbooking.
According to the report, one specific type of vehicle had evidence of price inflation on 1 in 5 applications. 1 in 5. Now that’s a scary ratio.
Fraudsters have a knack for the finer things of life. For instance, the top collateral tied to fraud includes Mercedes, BMW, and even Ferrari. These high end vehicles can turn a large profit overseas making them much more enticing for fraudsters.
Straw purchases are when an individual buys a vehicle to hide the identity of the true buyer. They essentially use their identity to conceal someone else’s.
This trend is hard to identify on a single application because it is just a snapshot in time. But the Point Predictive consortium has unique data that gives them the ability to detect this behavior.
One particular trend is the removal of a coborrower. In their study, they found that 5% of single borrower applications had previously submitted a similar application. These previous submissions not only included a coborrower, that coborrower also had a lower score. Not a higher score, which would be typical. This may lead a lender to believe that the borrower is not the true buyer.
40 Pages of Fraud – What More Could You Ask For?
This report confirms that the pandemic had a dramatic effect on fraud in the automotive industry. As businesses adapt to the digital transformation, so does fraud. It is important for auto lenders to know what risks are present, how those risks are evolving, and how they can get in front of them early.
Point Predictive also highlights some key estimates around where fraud is trending, and what lenders can expect. If we can learn anything from the last recession, fraud and default are only going to get worse.
About Point Predictive Inc.
Point Predictive enables lenders to fund more loans simply with a unique combination of Artificial and Natural Intelligence™ (Ai+Ni™) to power machine learning technology solutions. Point Predictive helps automotive, mortgage, retail and personal loan finance companies to identify the consumer applications with truthful and reliable information without the intense interrogation and verification of data caused by lower tech solutions currently in use. Highly regarded as the most trusted fraud and misrepresentation analytic solution providers, Point Predictive has transformed that trust to enable lenders to fund more loans to more consumers simply. Point Predictive uses big data powerfully orchestrated from millions of examples of true and falsified loan applications, billions of derived proprietary data elements, and scientifically selected third-party data sources to build powerful machine learning models with the added natural intelligence of human experience.
Disclaimer: Justin Davis (author) works for Point Predictive as a Fraud Consultant