Auto News

Auto Loan ‌Fraud ​Surges as Synthetic Identities‍ and “Credit ‍Washing”⁣ Rise

Auto loan fraud is escalating, driven by increasingly sophisticated tactics involving stolen ​identity credentials and‍ the creation of⁢ fictitious identities, according to a recent analysis by TransUnion. While fraud incidence rates in auto lending remain lower​ than those seen with credit cards and unsecured personal loans, the dollar amounts lost are⁣ substantially higher‍ across​ all credit risk ⁣levels.

The shift‌ toward digital auto lending ‍is⁤ contributing to the problem.Traditionally, in-person transactions offered a ⁣degree of identity ⁤verification, but this safeguard ⁣is weakening as more of the process moves⁣ online. As a result, the‍ risk‍ of fraud⁢ is growing.

A key component of this surge is “synthetic identity ‍fraud,”⁣ where criminals combine real‍ and⁣ fabricated data to⁤ construct entirely new identities. ⁤This allows them to secure car ⁢loans‍ with⁣ little expectation ‌of repayment. TransUnion‍ reports a “wealth of stolen ​identity credentials”‌ are readily⁢ available, enabling fraudsters to expertly fabricate these identities. ⁢

An earlier⁢ TransUnion report, ‍”state of Omnichannel Fraud,”⁤ highlighted that the percentage of synthetic identities ​used in applications for auto loans, bank ⁢credit cards, retail credit cards, and unsecured personal loans reached an all-time high at the end ⁢of the⁤ frist half of 2024. This exposed‌ lenders to a record $3.2‌ billion ⁤in potential ⁤losses.

This fraud ‍isn’t ‌limited to high-risk⁣ borrowers. TransUnion notes⁤ that fraudulent activity is becoming increasingly⁤ common among consumers in lower-risk credit tiers – those ⁣lenders typically expect to be repaid by. Fraudsters are ‍employing tactics, ​sometimes referred to ⁤as “credit ​washing,”‌ to artificially inflate their credit scores, creating the impression of strong creditworthiness and misleading lenders.

“With a wealth of stolen identity credentials readily available, TransUnion found criminals are getting vrey good at fabricating identities,” the “State of omnichannel Fraud” ⁢report stated.

These deceptive‍ practices ⁣obscure the true risk faced by lenders, perhaps driving ⁣up loan losses even ⁤when ‍a loan ‍initially appears low-risk.‍

“What can be ‍most concerning…is that fraudulent ⁢behavior is increasingly ⁢prevalent among consumers in lower-risk credit tiers,” said Merchant,⁤ a representative ‌from TransUnion. “But consumers and crooks create the ‌impression that their credit‌ score⁤ is exceptionally strong – giving lenders more reason to move cautiously.”