Scammers Are Pushing Auto Loan Fraud to Record Levels

Scammers who share tricks with one another on social media are pushing auto loan fraud to record levels.

The dollar amount of car loans involving fraud grew last year by more than 16% to $9.2 billion, according to a report from risk management firm Point Predictive. In dollar terms that’s about 1.3% of all auto lending. The increase is much faster than the growth in total lending identified by the Federal Reserve Bank of New York.

The rising numbers of swindlers is likely contributing to the record share of borrowers that are falling behind on their auto loan payments, as fraudulent loans are more likely to end up in default.

One of the fastest growing types of fraud was so—called credit washing, where credit repair companies file false identity theft claims with credit bureaus or the Federal Trade Commission, to help borrowers clear black marks from their credit histories. Indicators of credit washing showed up in 1.7% of loan applications last year, a 162% increase over the prior year, according to the report.

“Credit repair scammers have become a cottage industry,” said Frank McKenna, chief strategist at Point Predictive and coauthor of the report. “They’re sharing standardized tactics on social media, and as their message spreads it’s creating a lot more risk.”

Last year around one in five auto loans was packaged into an asset-backed security, based on data from S&P Global and the New York Federal Reserve. So far, the risk premiums on securities backed by subprime loans — the ones that are likeliest to get hit by by elevated defaults — don’t show signs that investors are panicking. But the premiums on the riskiest bonds are elevated from where they have been over the last 10 years.

Point Predictive offers services to identify and combat fraud, which means that it could win more business if it identifies more problems in the market. But other industry experts have also pointed to the growing frequency of fraud.

The largest share of fraud involves the misrepresentation of income or employment, which can come from both borrowers and dealers. These kinds of inaccuracies accounted for 42% of all fraud last year by dollar amount, Point Predictive said. To detect signs of likely income misrepresentation, the company uses methods including tracking the income levels that borrowers put on different applications and flagging significant variations.

McKenna attributes the rise in fraud in part to macroeonomic factors the are challenging borrowers, such as inflation and higher interest rates.

But social media also appears to be playing a role, McKenna said. Credit washing is sometimes combined with a tactic called synthetic identity fraud, in which scammers create multiple fragments of a fake identity — ID cards and employer names, for example — and string them together to present lenders with what appears to be a legitimate application for credit. Together, credit washing and synthetic identity fraud accounted for over a quarter of all fraud last year.

“What’s driving a majority of the fraud risk in the last 12 to 18 months has been the sharing of schemes like credit washing and stolen social security numbers on social media,” McKenna said.

For the report, Point Predictive looked at over 256 million applications it helped review for lenders and dealers, covering $4 trillion worth of loan requests, the firm said.

Top photo: The largest share of fraud involves the misrepresentation of income or employment. Photographer: David Paul Morris/Bloomberg