When envisioning fraud, one might typically picture someone wearing dark sunglasses, surreptitiously observing you as you enter your ATM PIN. However, cunning fraudsters have evolved, blending real stolen information to craft entirely new, synthetic identities. These fraudulent identities are then used to acquire brand-new vehicles.
As reported by TransUnion in a recent study, synthetic identity fraud has surged to unprecedented levels, particularly within the realm of auto financing. Jason Lord, Vice President of Product Marketing for Fraud and Identity Solutions at TransUnion, attributes this surge to two primary factors. Firstly, there’s been a rise in the online purchase and financing of cars. Secondly, the widespread availability of synthetic identities has grown significantly among criminals.
Auto loans make up majority of money stolen with synthetic identities
As outlined in the TransUnion report, while many sectors experienced a decrease in synthetic identity fraud or maintained relatively stable levels, the automotive industry stood out as a notable exception. In the first half of 2023 alone, there was a notable year-over-year increase of 38 percent in synthetic identity fraud. This marks the second consecutive year of such an upward trend, as highlighted in the report.
This surge in synthetic identity fraud isn’t merely a statistical increase; it carries substantial repercussions for the industry. It has led to a staggering $1.8 billion in fraudulent auto loans that are unlikely to ever be repaid. In comparison, bank credit card access fraud amounted to $994 million, while unsecured personal loans fraud stood at $57 million.
Shai Cohen, Senior Vice President of Global Fraud Solutions at TransUnion, explains, “Fraudsters persistently target the industry they perceive as the most lucrative.”
Jason Lord, elaborating on this trend, highlights the convenience of online vehicle financing and purchase along with the high-value nature of vehicles, making them an ideal target for illicit gains.
What are synthetic identities?
Synthetic identities are akin to the Frankenstein of identity,” Lord explains.
Criminals amalgamate genuine information from various real individuals, whether they are living or deceased, to construct a novel and credible identity.
“It might involve a child’s Social Security number or even the physical address of a convicted felon who is currently incarcerated,” Lord elaborates.
Subsequently, these constructed identities are employed to seek credit, including auto loans, personal loans, or credit cards.
The infusion of genuine information into the synthetic identity makes it less likely to trigger alerts during an automated loan underwriting process compared to a completely fabricated identity. This tactic proves effective in the auto financing sector because the software utilized by lending institutions lacks the sophistication to detect this form of counterfeit identity. Consequently, while this software expedites lending decisions, it may lead to inaccuracies that would be otherwise prevented through manual inspections.
“They’ll verify the authenticity of individual identity components, such as confirming the legitimacy of an address or Social Security number,” Lord clarifies.
From the lender’s perspective, this fraudulent identity appears to be a legitimate individual seeking financing for their forthcoming vehicle purchase.
Ease of auto e-commerce
Numerous drivers opt for online vehicle purchases and financing for the sake of convenience and comfort. Regrettably, it’s not only law-abiding drivers who benefit from this technological convenience; criminals are also capitalizing on the same ease of access.
“If you’re contemplating the most opportune avenue for exploiting credit to the maximum and then vanishing without a trace — what we term as ‘busting out’ — the automotive sector provides an ideal setting for such activities,” Lord notes.
Cohen echoes a similar sentiment, stating, “Fraudsters employ synthetic identities to secure auto loans and subsequently drive off with high-end, new vehicles, never to be found again.”
Will this impact my ability to secure financing?
When questioned about how the rise in fraud within the automotive sector might affect honest borrowers, Lord’s response is straightforward: It won’t.
“We engaged with various organizations,” he underscores, “and stressed that there should be no compromise between tackling fraud and creating unnecessary obstacles.”
Instead, he advises lenders to implement swift checks early in the application process. This could involve intensifying checks on identity elements or identifying instances where too many individuals are associated with a single credit card account, for instance. Such measures would introduce additional hurdles for fraudsters while causing minimal inconvenience to genuine borrowers.
Despite the uptick in fraud accompanying the shift of auto lending to the online sphere, Lord maintains a positive outlook regarding technology’s role in the industry.
“There are technological solutions available,” he notes, “and the result is not just the prevention of fraud but also the expedited processing of legitimate consumer transactions.”