Fraud Prevention in Auto Lending: Tools and Tactics for Success

Earlier this year, a dealer financed over $100,000 for an Audi SUV to an identity thief. The fraudster used stolen personal information to open a bank account in the victim’s name and forge a driver’s license and council rate notice to secure the loan. 

Suspicions arose only after the car had been transported from the dealership. The first the victim knew of the crime was when the dealership’s financier came looking for the Audi. This left the dealership to manage the damage and absorb the hefty cost, including investigation expenses, with limited hope of regaining lost funds. 

This is far from being an isolated incident. Fraud schemes targeting auto dealers have been making headlines. As with other sectors, fraud in the auto industry can take many forms, including:

• Third party fraud: Perpetrators use a victim’s personal information, such names or credit card numbers, to impersonate them without permission. This enables identity takeover, a fast-growing fraud vector identified by Equifax FraudCheck insights.
• Synthetic identity fraud: This type of fraud goes a step further, piecing together personal information to construct replica identities and false profiles that impersonate genuine car buyers.
• First party fraud: Perpetrators misrepresent their identity and/or give false information for financial and material gain. This type of fraud occurs when customers apply for credit cards and loans with no intention of paying. 

As fraudsters adapt and leverage advanced technologies to exploit new vulnerabilities, it becomes increasingly challenging for dealerships to limit their exposure to fraud during the application and onboarding process. 

Dealerships face high financial loss risks from fraud due to pressure from both lenders and buyers to take responsibility. Not heeding this can significantly impact their reputation and business growth. A dealership known for lacking fraud prevention processes can suffer severe damage to its customer reviews and recommendations.

Protecting your dealership from fraud

Protecting your dealership from fraud requires a multi-pronged strategy. A layered approach that combines different fraud prevention tools and multiple data points can help auto dealers more accurately identify customers, assess risks, and flag potential fraudulent activity. These processes should operate seamlessly to ensure a smooth experience for trusted customers while adding necessary authentication for potentially risky ones.

Using the fraud story of the $100,000+ Audi SUV financed to an identity thief, let’s explore the fraud prevention tools that could have caught the fraud in time.  

1. Fraud intelligence knowledge sharing

Equifax FraudCheck is a service that pools member-provided data to identify common fraud trends and patterns. Information from members about confirmed fraud events is enriched with police listings and other third party data, enabling FraudCheck to flag future fraud attempts following the first fraudulent use of a stolen identity. 

Even if their fraudulent activity has not yet been reported, a red flag is raised when any suspicious identity verification attempts occur.

In the Audi fraudster example, multiple loan applications by the fraudster would prompt lenders to run queries in FraudCheck. This heightened activity would have triggered an alert to the auto dealer, providing an early warning of fraudulent behaviour. 

2. Email risk scoring

Email address metadata is rich with transaction history and provides valuable insights when combined with active intelligence. The Equifax Email Risk Search checks your customer’s email against a blacklist of known or highly suspicious email and phone data. A predictive risk score is returned based on email metadata and details of any risk and fraud signals.

In the Audi fraudster example, an Equifax Email Risk Search showed the fraudster’s email address had a risk score of 492 (moderate risk), whereas the victim’s genuine email address had a score of 003 (very low risk).

3. Device Intelligence

Device intelligence assesses the risk of fraud associated with any device being used to make online purchasers. Pre-configured rules determine the device’s trustworthiness, and it is compared to a global intelligence network to alert for suspicious behaviour.

Working behind the scenes, Equifax Device Intelligence profiles the risk of the device before the person, enabling businesses to make real-time decisions whether to accept or challenge a customer. This ensures the right level of friction for the specific consumer and journey touchpoint. 

For the Audi fraudster, device intelligence could have identified the true physical location or IP address of the fraudster’s device. As the fraudster was pretending to be someone else, these irregularities may have been flagged to the auto dealership, alerting them to potential fraud. 

4. Biometrics

Equifax Biometrics with facial recognition improves the speed and security of onboarding by verifying a person’s identity in a secure, convenient and user-friendly way. Facial recognition measures numerous data points from a facial image to assess the probability of a match with the identity documents.
Multiple layers of verification are used to determine whether the user presenting the identity is a real person with genuine ID documents. Our facial biometric matching and liveness detection leads the industry with a match error rate of 0.63% and 100% success in detecting presentation attacks.
In the Audi fraudster example, the document fraud assessment feature in Equifax biometrics could have detected that the fraudster was using falsified documents. This feature analyses thousands of data points to determine whether the ID document is legitimate and has not been tampered with or forged.

Don’t wait for fraud to impact your dealership. To learn how our advanced fraud and ID solutions can help protect your business Book an appointment with our team today.