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.”
