Podcast: Synthetic fraud rises in powersports, auto 

Amanda Harris 0:20 Hello everyone and welcome to the road map from auto Finance News. Since 1996, the nation’s leading newsletter in automotive lending and leasing. It is Monday, November 18th, and I’m Amanda Harris, joined by James Van Bramer and Ashley Savage. This is our weekly wrap and what happened in auto finance for the week ending November 15th, 2024. In economic news applications for US, unemployment benefits fell to the lowest level since May, with initial claims down by 4000 to 217 thousand in the week ended November 9th, according to Labor Department data. New claims were below the average of the past two years. In compliance, the consumer Federal Protection Bureau published a report last week highlighting the bureaus, concerns that new state data privacy laws. Set to take effect in January. Include exemptions for financial institutions and data subject to the Gramm-Leach-Bliley Act and or the Fair Credit Reporting Act. The GLBA requires entities that offer loans to safeguard consumer sensitive data, while the SCRA prohibits the sharing of information gathered by consumer reporting agencies unless under specific guidelines and for specified purposes. Several states, including California, Florida and Texas. Have passed consumer data privacy laws, but include GLBA exemptions. The CFPB feels that these exemptions can create gaps for certain protections for consumers and is urging state legislators to address those gaps. Caused by what the Bureau sees as limitations in federal law. An automotive finance demand was weaker in the third quarter amid still high prices and as credit standards remain unchanged. The Federal Reserve’s October senior Loan Officer survey on bank lending practices. Indicated that many banks reported weaker demand for auto loans. Unchanged credit standards and stable requirements for metrics such as minimum required, down payment and credit score. As of October, the average transaction price of a new vehicle was $48,623, which is up 1.7% year over year, according to. The latest data from Kelley Blue Book, new vehicle incentives did climb to 7.7% of the average transaction price. Compared with 5% in October 2023. Some auto lenders are looking to grow while keeping underwriting criteria stable. Consumer portfolio services is eyeing organic growth in 2025 by adding to its sales force and targeting geographic expansion. The subprime lenders originations rose about 38% year over year to 446 million in Q3, while standings increased 13% year over Year to 3.3 billion. CPS implemented improvements that reduced funding time and is working to improve collections and maintain stronger credit performance.
While growing originations, James has some further details on industry wide originations growth. So James, please take it away. James Van Bramer 3:18 Thank you so much, Amanda. So auto originations totaled 6.4 million contracts in the second quarter. That was up just under 1% year over year, but it of course is still down about 13% compared to what we saw pre pandemic according to Transunion’s latest credit Industry Insights report the. Growth is modest, but growth is growth. the Super Prime segment, however, was the only credit tier that actually saw origination growth in the quarter, while the others declined. Prime origination growth rose 11.2% year over year. As for the drivers of the growth, the price relief that was seen in the used vehicle market and the return have lease the return of leasing have been major catalyst. If you’ve been listening to us or reading our stories, it may come as no surprise that the le. Trend in particular has been very noticeable on the EV side, largely due to the federal. Tax incentives. To point to one lender. As a scene growth over the last couple quarters, I had spoke with Commonwealth Credit Union who are on pace to grow origination volume by double digits year over year, fueled by its use of AI powered underwriting platform, Zest AI, the Frankfort, KY based credit Union has seen their. Sorry, their origination volume through August was 162 million, which puts them on pace to originate around 243 million. For the year. That would be about a 16.3% increase because of their investment into zest AI to be able to speed up the process of their originations, which has allowed them to create more value and expand into lower credit tier lower credit tiers. That’s it for me for now in Powersports News. Ashley, you just got back from this year’s RV dealers convention Expo ash. What were the key takeaways there? Ashley Savage 5:16 Thanks, James. This year’s RVDA Convention and Expo is the perfect place. You know, connect with dealers in the industry and the key take away seems to be that dealers are largely optimistic about retail opportunities in 2025, especially following recent rate cuts by the Fed and a slight return in confidence for some consumers following the election. Elon R. An Indiana based RV dealership, for example, sold about 25 units in October, which is higher than the usual 10 to 15 units. In the typical month, according to a service manager with the company who I spoke to at the event. And talking with her at the event last week, she added that the dealership sells a little over 100 units per year, but expects to sell at least twice as much in 2025 due to pent up demand caused by inflationary pressures and election concerns, she added. That the increase in sales was partly driven by consumers prioritizing dealer transparency and customer experience above pricing, which is also something that we’ve seen in auto recently. I think gear is a tad, but while the key take away seems to be that dealers are optimistic about the coming year, one panellist with statistical surveys highlighted that power sports and RV dealers are leaning in on new data sources to identify opportunities for.
Increase sales and a still challenged market. These data sources include registration data, which helps to determine what regions in the state or county are showing increased demand for certain product segments. Dealers can also use alternative data, such as registrations data to better position themselves in an ever changing market this year and also next year. By using data to develop market market strategies that address the three WS, which include what products are selling, who is selling these products and. Where these products are being sold and registered using the three WS dealers can curate inventories. Strategies that align with specific consumer demand in each region. Also last week, the RBDA convention gave us a new update on synthetic fraud in the RV space, which is something that we don’t hear about as often as we do in the auto space. In short, synthetic fraud is revving up in the recreational vehicle space, leaving dealers at risk due to outdated processes and fraud stereotypes. The panel on RV fraud includes stats from a recent RV survey, which included answers from 76 RV dealers. A survey conducted and presented by data provider 700 credit revealed that 30 point 3% of dealers had an RV stolen in the past 12 months due to synthetic fraud, and of those who reported losing an RV to synthetic fraud, 52.6% reported losing. One to two units, while 22.4% said three to five units were stolen. 13.2% said 6 to 8 units were stolen and 11.8% reported more than 8 units stolen. It’s gonna be interesting keeping an eye on synthetic fraud in the RV space.
And how industry leaders are choosing to approach it, given that many dealers are still unfamiliar with the fraud type and how to catch it. That being said, our coverage on RV fraud is live on the site and takes a deeper look at synthetic fraud in the industry and includes insight from 700 credit octane, P decu and source One Financial services. Unfortunately, synthetic fraud is not unique to the power, sport and RV industry, so I’ll pass it back to James for the latest updates. On the auto side of things. James Van Bramer 8:25 Thank you so much, ash, ash, Ash said. Nobody likes fraud, but synthetic identity fraud a particular seems to continue to haunt the auto finance industry. It has risen 5 basis points year over year to now appear in just under 1% of all credit applications in the second quarter of this year. Some of the most frequent methods of identity. Synthetic identity fraud in auto finance. Include Social Security numbers, network fraudsters using Social Security numbers before they were born, which happened in about one in every 200 Applications. Folks using deceased person Social Security number, which happens in about one in every 625 applications. And then there’s what one frequent fraudsters use. Hundreds of different Social Security numbers to apply as often as every single day for various different auto lenders. That happens about one in every 2500 applications. So synthetic identity fraud, in short, continues to be a trend that has particularly affected the auto finance industry. Although it is of course. Affecting other financial services as well. But just to put the picture as to how it particularly is affecting the auto finance industry for the first six months of this year, synthetic identity fraud exposure has totaled $3.2 billion across consumer finance. But for the auto fin. Industry it has accounted for $2 billion. That means that the auto finance industry is representing 63% of that exposure. That is according to a recent Trans Union report. Not to end morbidly, but I will pass it over to Amanda for some closing statements. Amanda Harris 10:09 All right. Thank you, Ashley. Thank you, James. We’ll definitely keep an eye on fraud and all of these trends into 2025, I’m sure. Opie continued. Hot topic of discussion just keeps ramping up, so I just think about it right. So well, that would do it for today’s episode. Thank you again for joining us on the road map. Be sure to follow us on X and LinkedIn, and of course you can check out everything online at autofinancenews.net and here next time.