Analyst outlines steps to expand fraud detection
Auto lenders attempting to combat fraud may be going about it the wrong way, according to a data scientist specializing in fraud trends in financial services.
“Do not limit your focus to fighting fraud,” said Josh Wortman, General Forensics’ chief data scientist. “You should really cast a wider net and try to identify any suspicious and risky activity among dealers,” he said, adding “suspicious activity quickly turns into fraud if left unchecked.”
Suspicious behaviors can vary but if, for instance, a dealer repeatedly submits loan applications for cars not listed on their website, lenders should verify the cars are real in order to ensure there is no vehicle or title fraud issue, Wortman said. Likewise, if a dealer hasn’t added inventory to their website for a few weeks, lenders should be suspicious that the dealer is having operational or financial problems. Dealers submitting many variations of loan applications for one applicant is another red flag.
“You should be suspicious the dealer is trying to make borrowers appear qualified, but in reality, they are fudging the numbers,” Wortman said. “You need to be suspicious about what is happening and investigate. Be prepared that what comes next may not be good.”
If suspicious behavior is detected, Wortman said, lenders should have an open and transparent conversation with dealer partners and encourage them to correct it. If that approach fails, it’s worth it to break ties with that dealer.
“Ultimately, if you only do business with healthy and transparent dealers that you trust, you can build a nice protective moat between your finance company and actual fraud,” Wortman said.
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