Online lending growth spurs need for heightened fraud-prevention efforts

Enhanced o nline lending is a natural outgrowth of the COVID-19 pandemic . In the past few months, online lenders have stepped up operations and expanded their digital footprints. In the wake of increased app traffic, l easing and financing company Rodo has added dealership groups to its cadre and has inked a pertnership to funnel 300,000 users to its platform. Meanwhile, online automotive retail platform Digital Motors has hooked up with fintech eLEND Solutions to smooth the process between online purchasing and financing . And Upstart , a lending platform that specializes in personal loans, has also set its sights on the sector, with plans to launch an artificial intelligence -powered auto lending platform in August. The fintech intends to debut a refinancing tool this year and roll out leasing and retail financ e products in 2021 . With so many people leery of leaving their houses for fear of contracting COVID , or troubled by the discomfort of wearing mask s , online vehicle sales and financing appear to be the ideal solution . Sanitized keys and documentation, touchless procedures and remote delivery appeal to car shoppers. Yet, waning frequency of face-to-face interaction intensifies the threat of fraud. In the global financial services industry , the percentage of risky transactions — those that have been denied or reviewed due to fraud indicators — have increased 11% since early March, according to TransUnion . Auto finance fraud, specifically, has shot up about 30% per week since March, despite a decline in originations , according to the latest statistics from PointPredictive , a consortium that uses artificial intelligence to prevent fraud . Put another way, auto lenders face increasing fraud with fewer loans, mean ing the overall fraud rate has climbed. Under the umbrella of fraud, “ s ynthetic ” fraud is reportedly the fastest growing type of financial crime in the U.S., the Federal Reserve noted in a white paper last week. Synthetic identity fraud occurs when perpetrators combine fa ls e and real information, such as names and Social Security numbers (SSNs), to create new identities and secure loans . Along those lines, a study conducted by AI fraud-detection company Coalesce estimated that synthetic identities account for about 20% of all losses in a given loan portfolio — 4.6 times a typical credit loss — despite occurring in only 1% of all loans. In dollars, the estimated loss exposure from synthetic identity fraud for auto finance is $1.4 billion per year and growing, PointPredictive said . A new technique to electronically verify SSNs may reduce the prevalence and impact of synthetic fraud in the financial system , according to the Fed . Last month, the Social Security Administration rolled out the Electronic Consent-Based SSN Verification (eCBSV) service , which enables financial institutions to secure electronic consent — rather than require “wet” signature s — from consumers to verify whether a ny name, SSN and date of birth combination matches SSA records. But , despite the positive step — or maybe because of it — t he Fed warns that the industry may see a shift toward conventional identity theft, when accounts are opened using an individual’s real name, SSN and birth date , but with the fraudster’s address and phone number. “To mitigate this likely shift in fraud tactics, the industry should preemptively work to increase mitigation controls for this type of fraud,” the Fed wrote . One idea for lenders is to track whether phone numbers and addresses have been used for multiple applications in their portfolios . “Piggybacking” is another ploy increasing in popular ity . This involves tacking on a synthetic identity as an authorized user to an existing account belonging to an individual with good credit. In many cases, the synthetic identity acquires the established credit history of the primary user, quickly building a solid credit history . What can lenders do? First off, they should review customer data and identity elements beyond credit bureau scores, paying attention to the length of time a customer’s email address has been active or matching ownership data for a provided phone number and address. Additionally, institution s should attempt to determine whether certain combination s of information make logical sense. The Fed cites as a red flag the example of a 50-year-old customer who se email address has only been active for six months and whose active accounts are less than five years old. Still, scammers are becoming more sophisticated, which challenges fraud - prevention efforts. In fact, some f raudsters invest time and effort engaging in online activity and creating convincing social media presences to beef up valuable synthetic identities. To that end, i nformation sharing within — and between — organizations can help the industry mitigate fraud. Another practical solution for l enders is to a sk applicants to prove their identities by submitting a government-issued ID along with a selfie. As lenders bolster their efforts to originate loans electronically, they must simultaneously reinforce systems to identify and prevent fraud. Auto Finance Summit, the premier industry event, returns October 20-22, 2020, as a virtual experience. The virtual experience will offer the same quality networking and education as past events, all through an online platform. To learn more about the 2020 event and register, visit www.AutoFinanceSummit.com .

Online lending growth spurs need for heightened fraud-prevention efforts

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