Fraud Management & Cybercrime , Fraud Risk Management , ID Fraud

Synthetic ID Fraud Rises 98% in Auto Lending Industry

Point Predictive Report Also Reveals Increase in Fake Employer Schemes
Synthetic ID Fraud Rises 98% in Auto Lending Industry

Synthetic identity fraudsters target the auto lending industry the most, leading to a 98% increase in attempts and a staggering $7.9 billion in losses for the industry in 2023. Point Predictive's study of 180 million loan applications found that income and employment misrepresentation, synthetic identities, and credit washing account for nearly 75% of the risks faced by auto lenders.

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Typically associated with first-party fraud, these misrepresentations involve borrowers committing fraud rather than third-party scammers. While identity theft accounted for 14% of all risk in 2023, it represented only a fraction of the overall challenges hitting auto industry lenders, according to the report.

As more lenders and dealerships move application processes online, they face risks that already plague online merchants - fake identities, fraud as a service, and application bots that can apply for many loans simultaneously. Other challenges include the proliferation of sophisticated credit repair schemes such as premade credit privacy numbers, or CPNs; credit washing; fictitious employers and the sale of fake primary tradelines.

Synthetic ID and Credit Washing

Image: Point Predictive

The study shows a steady increase in the rate of synthetic identity fraud. By the fourth quarter of 2023, the average synthetic identity attempt rate increased to 83 basis points, indicating that a fictitious credit profile was submitted in 1 of every 120 auto loan applications. Multiple factors leading to the explosion of synthetic profiles include the growing use of stolen identities, a shift of synthetic ID fraud from other industries into the more lucrative auto financial space, and an increase in the sale of CPNs to consumers.

It is important to note that more than ever, data breaches are targeting insurance in healthcare and government, but the same data is being used in other industries. This emerging trend in auto fraud can be attributed to the appeal of high credit limits and the ease of securing online auto loans without having to visit dealerships in person.

At the same time, the practice of credit washing by a few credit repair companies is prevalent. Credit washing involves systematically disputing all negative tradelines on a credit report not as reporting errors but as outright identity theft. Credit repair companies instruct the consumer to file a false affidavit with the FTC and use that document to dispute all their negative tradelines because they were a victim of identity theft.

The Persistent Problem of Fake Employers

Not all fraudulent activities in the auto lending industry involve complex schemes such as synthetic identity fraud. Often, borrowers inflate their income or misrepresent their financial status to enhance their chances of securing a loan. Fraudsters also use shell companies to create false employment verifications. The report identifies over 11,000 fake companies circulating within the industry. Although seemingly harmless, 40% of loans secured with a fake employer result in charge-offs by borrowers who never intended to repay.

The report also highlights that fraud-as-a-service platforms enable easy access to fake employers, allowing people to buy fraudulent employment verifications. These platforms provide counterfeit paystubs, operate dedicated websites and offer phone support to falsely confirm employment.

Dark Web Trends

Telegram has helped make fraud-as-a-service capabilities easily available for as little as $150. The report also points to a new service called premade CPNs, which has proven to be a big moneymaker for scammers and synthetic identity thieves operating underground channels. For a fee, individuals can enlist the services of fraud rings to obtain loans under false pretenses.

The number of advertisements on Telegram has risen dramatically over the past year. Premade CPNs are template fake credit profiles created and aged for three years. The difference between premade and standard CPNs is that premade CPNs are typically created with generic names and are allowed to age, making them ideal for bypassing auto lenders' synthetic identity detection systems. While standard CPNs are sold for $80 to $100, premade CPNs are fetching $750 or more on Telegram channels, the report states.

About the Author

Suparna Goswami

Suparna Goswami

Associate Editor, ISMG

Goswami has more than 10 years of experience in the field of journalism. She has covered a variety of beats including global macro economy, fintech, startups and other business trends. Before joining ISMG, she contributed for Forbes Asia, where she wrote about the Indian startup ecosystem. She has also worked with UK-based International Finance Magazine and leading Indian newspapers, such as DNA and Times of India.

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