Lenders are focusing their fraud departments on dealership activities lately, but lenders “discount the quantity and the scale of identity fraud and synthetic fraud that may be hitting them,” Geoff Miller, head of global fraud and identity solutions for TransUnion, told Auto Finance News.
Outstanding suspected synthetic balances increased 5.2% year over year through 2Q18 to $621 million, according to TransUnion. Synthetic fraud only makes up 0.05% of the industry’s $1.2 trillion auto balances recorded through the second quarter, but in a thinning margin business, lenders are fighting to eliminate these losses.
“Consumers are stealing identities, creating false identities, and going out and buying vehicles,” Miller said. The rise in consumer fraud is largely due to processes being completely digital. “It’s great, but it’s a riskier, faceless channel,” Miller added.
The issue for lenders is how to maintain a competitive edge in the digital space without sacrificing the consumer experience. Lenders can put many processes in place to prevent fraud, such as making the application long or having users answer numerous identity questions, but the result creates a “terrible user experience,” Miller said.
“Consumers get frustrated and say, ‘oh my gosh, this process is too long.’ So they abandon it,” Miller said. Now, consumer fraud is starting to get considerable traction with auto lenders as they start to understand the problem, and TransUnion is working on helping lenders develop less tedious fraud protection processes. “The loans that [lenders] think are synthetic may not go bad today,” Miller said, “but they will go bad eventually.”
