Lenders Need to Guard Against Post-Data-Breach ‘Credit Washing,’ Analyst Says

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Auto lenders are likely to tighten underwriting standards to stave off “credit washing,” a type of fraud that has become more popular amid an increase in data breaches, LexisNexis Risk Solutions analysts told Auto Finance News.

Credit washing occurs when a borrower disputes negative information in a credit report, prompting the agency to “clean,” or temporarily delete, the information from the report and, ultimately, boost the borrower’s credit score. 

In the time it takes for the lender to resolve the dispute, a borrower may apply for a loan with the higher credit score, typically going undetected by lenders. 

Credit washing creates a higher risk to a lender’s portfolio due to the miscalculation of the risk associated with a given borrower. “Once you’ve booked the loan and the consumer has the car, now it’s just a matter of time before someone who fraudulently obtained that car is going to default,” said Ankush Tewari, vice president of credit risk strategy at LexisNexis Risk Solutions. 

Auto lenders are at a disadvantage detecting credit washing, Tewari said, since auto finance relies on traditional identity-confirmation methods, such as tracking address and salary history. However, many fraud prevention tools apply to digital marketplaces, and auto lenders must depend on other risk assessments at application. 

“What lenders need to do at the point of underwriting is look at the coherence of an identity,” said LexisNexis Risk Solutions Vice President of Global Analytics Jeffrey Feinstein. 

Specifically, lenders might consider sharing fraud data in a common repository, Tewari said. They could also incorporate non-credit bureau scores in their underwriting models, including public and private data, such as utility bills, education history, and licensing documents. 

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