Automotive Fraud: Income Misrepresentation
Automakers are back on top, showing their best sales in 8 years. Consumers who previously struggled to free up the capital for a car loan are able to qualify again. Still, just because some consumers are playing nice with the auto industry, doesn’t mean all are. In a recent research study, Equifax found that almost 34% of funded auto loan borrowers overstated their incomes by 15% or more. Auto loans where the borrower has overstated their income have a 4x higher likelihood of default than loans underwritten using verified income. Lenders need to keep an eagle eye out for consumers who may be trying to borrow more than they can handle.
How is it possible that some consumers can falsify income and become qualified for a higher loan? With better technology, faking paystubs and other documentation is easier than ever. Others might call in a favor and ask a friend to pose as a boss or supervisor on the phone to corroborate their income story. Some fraud is hard to spot.
Fudging one’s income might be more common than you think. Understanding the warning flags can help inspire you to dig a little deeper and see if a potential borrower is really telling the truth. Here are some of the most commonly encountered warning flags:
- Hand-written paystubs or income verification
- A generic job title for the borrower, such as “manager”
- Even dollar amounts for earnings
- Income is not in line with employment title or the borrower makes more than industry standards
- Documentation is not signed nor dated
- Employer cannot be contacted
- Incorrect tax withholdings
While not a complete list of warning flags, these are some of the most egregious signs that your potential borrower may be inflating income to qualify for a loan, or secure a higher loan for a more expensive car.
Simplifying the process
While it might be possible to go through each loan application with a fine-tooth comb, it would take significant man hours and resources away from the more profitable parts of your business. That’s why Equifax suggests a smarter solution to reduce the risk of auto fraud. Incorporate Equifax Verification of Income (VOI) to your loan approval process. We help protect against potential income misrepresentation.
To view a webinar on 2014 automotive trends, and the value of verifications, please click here.