Consumers providing false identification information, including employment and income, is a type of fraud that is costing auto lenders billions of dollars each year, prompting financial institutions to find creative solutions.
There are several ways lenders can protect themselves from fraud involving falsified pay stubs and bank statements along with forged credit history. Here are a few:
1. Lean on the experts: Lenders should hire fraud specialists or build a dedicated team that is trained to identify fraudulent information used to apply for credit. When fraud is detected, it is crucial for financiers to involve law enforcement and help build cases against fraudsters, Aaron Warner, founder and chief executive of computer security company ProCircular, told Auto Finance News.
“It’s easy to fall in between the cracks when you’re dealing with hundreds of thousands of [applications],” Warner said. “There are a lot of hands between the buyer, the auto manufacturer and the financial arrangements … there is a lot of room for [fraudsters] to find a chink in that armor.”
2. Leverage artificial intelligence (AI): Lenders can implement AI-based fraud scoring technology that can notify them of areas of concern related to a loan application, – including whether a borrower used a fake identity, falsified their income or included a fraudulent pay stub. Fraud scoring systems typically can detect what level of fraud is present, such as 3% or 5% of loans, freeing lenders up to focus on legitimate borrower accounts, Frank McKenna, co-founder and chief fraud analyst at fraud detection technology company Point Predictive, told AFN.
3. Partner with fintechs: Fintechs can provide outside services that otherwise would be time-consuming and expensive to build. Ally Financial, for one, works with document analysis provider Informed.IQ to flag fraudulent pay stubs using robotic process automation (RPA) and AI. MidAtlantic Finance Company, too, works with Point Predictive to identify income discrepancies and TurboPass, a software-as-a-service provider, to analyze and verify bank statements. “We use a wealth of different tools … they’ve been helpful in spotting discrepancies in pay and income,” said Mike Pereira, vice president of lending operations at MidAtlantic Finance.
4. Spread awareness: Financial institutions should be sure everyone within the company is aware of prevalent types of fraud and train staff on how to spot anomalies. VW Credit, for one, trains its originations and servicing teams on how to identify what fraud looks like within the lender’s specific loan origination system.
5. Collaboration is key: Financiers should share prevalent fraud data with other lenders to pinpoint patterns and build prevention strategies. “Information sharing and developing those networks [is critical] so that a lender is able to get alerts saying, ‘[Another lender is] seeing an uptick in this kind of fraud activity in your area,’” Katherine Romano Schnack, of counsel for law firm McGlinchey, told AFN.
Many credit repair companies use the same data repeatedly, offering an opportunity for lenders to flag loans using known fraudulent company names or other information, McKenna said, noting Point Predictive has identified more than 8,000 fake employer names and phone numbers being used to commit fraud.
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