A Terrible, Horrible, No Good, Very Bad Day
As a father, one of my favorite nighttime routines with my children is bedtime stories. In a society where electronics seem to be king, this time with my children allows them to snuggle up on the couch and have much needed, unplugged, family time. We switch up the genres each night; funny, action, life lessons, princess (with a house full of little girls what do you expect???) and occasionally sad. One of those sad books (with traces of comedy in it), was a story about a boy named Alexander. He was not having a great day, in fact, it was a Terrible, Horrible, No Good, Very Bad Day. I’m sure there are a ton of other folks that can relate.
The Dreaded Rise of Fraud
Those in the retail and auto industries are starting to see upticks with the amount of fraud that is being perpetrated. Losses are starting to mount up as fraud becomes more prevalent. From identity theft to loan stacking to income misrepresentation, the possibilities are endless for fraudsters.
But today, we’re going to take a deep dive into one of the fastest growing types of fraud: Synthetic Identity. Synthetic identity theft is fraud that involves the use of a fictitious identity. Fraudsters create new identities using a combination of real and fabricated information. In some cases, synthetic identities can even have a real Social Security number from one person and an address, date of birth and phone number from three others, making it difficult to detect. Talk about concern for terrible, horrible, no good, very bad days ahead.
It is Not Just Credit Cards
Fraudulent activity has become more complex over the years. It has moved from credit cards (due to EMV chips) to even auto loans. Originating fraudulent auto loans with synthetic identities leads to more opportunities for fraudsters. It continues to cost billions in lost revenue for dealers and lenders. According to the Federal Trade Commission, 1.7 percent of identity fraud complaints indicated that an auto-finance contract had been generated fraudulently, up from 0.8 percent in 2015. This will continue to rise as more of the processes move online. A “catch 22” scenario occurs because lenders could lose business if they do not go digital.
How Do You Fight Back?
So how can you put a stop to fraud? Well, you can’t completely wipe it out but proper due diligence measures need to be in place to ensure that the person you are looking to give a loan to is not a fake identity. Luckily, there are tools out there that can help with this. When I worked in auto finance I took advantage of those tools myself. You want to have protection in place for the underwriters decisioning these loans. Historically, if there was a First Payment Default (FPD), the underwriter was going to be held accountable about the decision he/she had made by the compliance folks. With all of the data breaches that have occurred, there is now too much personally identifiable information (PII) for sale. It could be a case of fraud and not necessarily poor underwriting that caused that FPD.
In the following excerpt from an article in the Auto Finance Journal, it talks about other areas feeling effects of fraud. “While the auto finance industry certainly is taking steps to reduce its exposure, the latest analysis from LexisNexis Risk Solutions shows how much rampant fraud still is happening in the greater retail sector.” You can check out the “2018 True Cost of Fraud” study here.
Stay tuned for Part 2 of our fraud series by my colleague John McWilliams.