The automotive industry remains the target of identity fraud, with synthetic identity fraud being the leading trend. According to a report from TransUnion, in the first half of 2023, there was a 38% increase year over year in cases of identity fraud in the automotive industry. It’s estimated that there are roughly $1.8 billion worth of car loans that will never be paid back. Analysts state that the auto industry leads in fraudulent loans.
Shai Cohen, senior vice president of global fraud solutions at TransUnion shares, “Fraudsters continue to gravitate toward the industry that they perceive as the most profitable to them.” As of now, that industry remains to be the auto industry.
What Is a Synthetic Identity
Industries in every sector have been ramping up their efforts to keep consumers up to date on identity fraud tactics. Still, consumers are continuing to fall victim to fraudsters, and the fraudsters continue to refine their techniques.
A growing number of auto loan fraud cases are secured through something called synthetic identity fraud. A synthetic identity is when a fraudster uses different pieces of real victims’ data to create a new identity. For example, they might take the social security number of a dead person and pair it to an address and image that belong to two different people. Unlike the case with a fabricated, non-existent identity, synthetic identities keep lenders from detecting fraud because elements of the identity are true.
Let’s explore some of the most popular ways fraudsters are securing car loans using fake identities.
Identity Fraud Detection Software Mishaps
Creating a synthetic identity allows fraudsters to bypass identity fraud detection software used by lenders. This is the main advantage of this fraud tactic. Parsing real information with other real information keeps the software from raising any red flags when a loan application is passed through the system.
Instead of the software checking the validity of all the information and comparing it to one another, it will pick out a piece of information like the address or the social security number to scan for validity. Lenders are continuing to use software to help simplify the loan application process, however, it’s becoming clear that unless done with extreme caution, optimizing workflow with software support is sacrificing safety.
The Ease of E-Commerce
Gone are the days of going inside a brick-and-mortar lender and filling out an auto loan application. Today, a fraudster can secure an auto loan with just an individual’s information and access to their credit card account. Whether the fraudster steals the identity of another individual, uses a synthetic identity, or uses their own identity, e-commerce has undoubtedly enabled the prevalence of auto loan fraud, as well as other types of consumer fraud.
Traditional Fraud Tactics Still at Play with Car Loans
Despite the boom in technology and access to information, many individuals are still engaging in fraudulent behavior through traditional document fraud. This is when an individual claims their income is higher than it actually is in order to get approved for higher car loans. Fraudsters might also falsify other information like residency information and employer information to help secure a larger loan.
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