Synthetic identity fraud is increasing, especially in auto financing, posing major challenges for the industry.
In the first half of 2023, auto industry synthetic identity fraud surged by 38%, leading to an estimated $1.8 billion in fraudulent auto loans.
Honest borrowers can safeguard legitimate auto loans with early application checks, ensuring security without sacrificing convenience.
In the ever-evolving landscape of financial fraud, criminals are now adopting sophisticated techniques to exploit vulnerabilities in the auto financing sector. The rise of synthetic identity fraud, as revealed in a recent report by TransUnion, has become a pressing concern. This article delves into the mechanics of synthetic identity fraud, its impact on the auto industry, and provides insights on how borrowers can secure legitimate auto loans.
We are seeing a 38% year-over-year increase in synthetic identity fraud within the auto sector during the first half of 2023.
Understanding Synthetic Identities
Synthetic identities, as aptly described by Jason Lord, VP of Product Marketing at TransUnion, are akin to the Frankenstein of identity. Fraudsters amalgamate real data from multiple sources, be it from living individuals or deceased persons, to craft a convincing new identity. This composite identity, incorporating real information such as Social Security numbers and addresses, is then employed to apply for various forms of credit, including auto loans.
The Auto Industry: A Prime Target for Fraud
The auto financing industry has emerged as a favored playing field for synthetic identity fraudsters. The ease of online financing and purchasing, coupled with the substantial value associated with vehicles, renders it an attractive opportunity for illicit gains. The TransUnion report underscores a worrisome 38 percent year-over-year increase in synthetic identity fraud within the auto sector during the first half of 2023.
This surge in synthetic identity fraud translates into staggering financial losses for the auto industry. A staggering $1.8 billion worth of fraudulent auto loans is projected to go unpaid, marking a significant economic impact. In comparison, bank credit card access accounts for $994 million, while unsecured personal loans account for $57 million. Shai Cohen, SVP of Global Fraud Solutions at TransUnion, affirms that fraudsters gravitate towards industries they perceive as most lucrative.
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Mitigating Risks for Honest Borrowers
As the threat of synthetic identity fraud looms, honest borrowers may wonder about its potential impact on their ability to secure financing. Jason Lord reassures that safeguarding against fraud need not come at the expense of borrower convenience. Implementing quick checks early in the application process, such as heightened ID element verifications, serves as a viable solution. These measures provide added security without unduly inconveniencing legitimate borrowers.
Below are 5 measures that top auto lenders are taking to combat synthetic identity fraud:
- Anomalies in Application Data: Scrutinize application data for inconsistencies or irregularities. For example, unusual addresses, multiple individuals associated with one address, or discrepancies in employment history.
- Unusual Financial Behavior: Pay attention to unconventional financial behavior. For example, rapid accumulation of credit lines, unusual patterns in credit inquiries, or a high number of recently opened accounts.
- Identity Verification Checks: Implement robust identity verification processes. These include multi-factor authentication, biometric verification, and thorough examination of supporting documents to ensure the authenticity of applicants.
- Social Security Number (SSN) Verification: Utilize tools to validate the legitimacy of Social Security Numbers provided by applicants. Cross-reference the SSN with relevant databases to confirm its validity.
- Behavioral Analytics and Machine Learning: Leverage advanced technologies like behavioral analytics and machine learning algorithms to identify patterns associated with synthetic identity fraud. These tools can help detect suspicious behavior and flag potentially fraudulent applications.
The Bottom Line
In an era where technology enables seamless financial transactions, it also exposes vulnerabilities that savvy fraudsters exploit. Synthetic identity fraud poses a real and growing threat to the auto financing sector. By understanding the nature of this threat and implementing strategic safeguards, borrowers can navigate the lending landscape with confidence. Choosing a legitimate company for your auto loan becomes paramount in safeguarding your financial interests.