Application fraud in Automotive lending can be as simple as a clerical error or income exaggeration, all the way to flat-out loan fraud involving the falsification of loan applications, the creation of false pay stubs, or multiple vehicles financed with different lenders. Sophisticated fraud involves groups of perpetrators and dishonest employees.
The pressure to sell a vehicle and get it through the finance office can also rush a process that requires efficient due diligence and a high level of attention to details. The finance office can be a dealership’s best line of defense against fraud, or is can be its originator and greatest liability.
Auto Loan Fraud is Spreading
The sales manager that falsified loan documents. The buyer who defrauded multiple banks to obtain nine different vehicles. Auto loan fraud has been in the news lately, and it serves as a continued reminder of the liability that dealer groups absorb in the quest to get vehicles over the curb.
While some loan fraud doesn’t grab headlines, it can be costly none-the-less:
- Misrepresenting education. Dealers give applicants who have never attended college special “Collage grad” financing and/or additional incentive offers, which can result in risk of incentive chargeback from the manufacturer or increased default risk for the lender.
- Misstating employment. There have been numerous accounts of applicants creating fake companies, and pay stubs from the fake companies, in an effort to gain unsuitable loans for applicants who do not qualify. This leads to higher delinquency and charge offs for lenders, damaging a dealers portfolio with the lender.
- Exaggerating job tenure. To enhance credit worthiness, some less-than-forthright consumers or dealers may indicate that an applicant has been employed at a job much longer than reality, in order to qualify for finance program criteria. This can lead to lenders buying applications that are riskier than they appear, and risk customers being put into vehicles they may not qualify for otherwise.
- Overstating income. To qualify for an auto loan or to get better terms, applicants and dealership employees may – sometimes significantly – boost the applicants reported income.
Regardless of how or why the misinformation is received, the fact is, customers may be qualified for terms and incentives from lenders and manufacturers that may not be based on reality, resulting in all parties absorbing unknown risks and increased expense.
The solution available to the auto industry today to help prevent these risks is real-time is third-party income and employment verification.
Equifax Verification Services leverages The Work Number®, the nation’s largest database of on-demand employment and income information. The Work Number contains over 54 million active records provided by more than 3,000 employers across the country, and is updated each time those employers process payroll.
In the case that a record is not instantly available, Equifax representatives can manually complete the verification by first validating the existence of an employer, then calling the employer directly for verification of employment and income. With such a stringent process, there is no rush or incentive to cut corners. Dealerships can reduce their liability and exposure to application fraud, protect their employees, lenders and customers; and gain additional credibility with their credit underwriters by instituting an auditable process that incorporates verifications into their finance operations. Independent, third-party verification eliminates potential conflicts of interest and institutes a process that will deter employees and customers from misrepresenting the customers’ information. Just the awareness of the process can deter employees from the temptation of falsifying applicant information, and add credibility when instructing customers to supply complete and accurate application information
A centralized, cost-effective solution like Equifax Verification Services can greatly minimize application misrepresentation, reduce dealership liability, protect the dealership reputation, ensure customers are getting the right terms for their customers, and improve dealerships credibility with their lenders.
For more information on Equifax Automotive Services, please visit http://www.equifax.com/automotive