The risk of fraud for auto lenders has increased 5% year over year, according to new data shared with Auto Finance News by PointPredictive’s chief fraud strategist Frank McKenna. By year-end 2019, fraud origination risk is expected to reach $7 billion.
Fraud in the auto lending industry is evident. In fact, discussions between lenders at the Auto Lending Fraud Roundtable held last week during the Nonprime Auto Finance Conference revealed that 90% of lenders believe fraud risk is rising over time, McKenna said. A few auto financiers at the roundtable were Westlake Financial, Anderson Brothers Bank and Universal Financial Company.
However, the rise in credit unions targeted by fraudsters is the latest “trend we are seeing,” McKenna said, noting a few credit unions participated in the roundtable but more should considering the trend. “Member-centric banks don’t look at people in a suspicious way,” he added.
Credit unions typically get hit with a “phantom loan scheme,” which means that fraudsters fabricate an entire auto loan when no sale of the car has occurred but the lender provides the proceeds unwittingly. “[Fraudsters] target credit unions specifically because credit unions have fewer fraud controls and are more consumer-friendly,” McKenna said.
Other drivers behind rising levels of overall fraud risk for auto financiers include the growth in sharing of fraud methods on social media, the increase in lending to borrowers with lower credit ratings and the billions invested in fraud controls by other industries, which have had the effect of pushing fraudsters toward auto lenders and dealers, according to PointPredictive.
McKenna’s analysis was conducted on more than 70 million historical auto loan applications.