US companies report a surge in suspicious loan applications

The conclusion stems from the Auto Fraud Trends Report published by San Diego-based Point Predictive. Combining the views of over 29 US-based lenders with comprehensive year-end data analysis of auto lending application, loan, and fraud data, the report shines a light on fraud trends and lenders’ perceptions and attitudes towards financially-motivated deception.

Among key findings, more than a quarter of lenders interviewed said that they considered fraud to be a significant threat to their organisation through last year, while throughout the whole of 2021, auto lending fraud was found to be caused chiefly by income, employment and stolen identity fraud. 

Over $1 billion was found to have been associated to applications created using fake employer details, with over 5,000 bogus employer profiles being used by consumers and dealerships on auto loan applications.

Forged bank statements and falsified pay-check returns also stood out as a key problem, the activity seeing a 22% increase through 2021. Experts say that the trend was driven by rising unemployment and increasing car prices owing to supply chain delays.

Rates of suspicious synthetic identity attempts on auto loan applications also skyrocketed, going to 68 basic points, up from the level recorded in 2020 of 35 basis points.

Reflecting on the revelations, Frank McKenna, Chief Fraud Strategist for Point Predictive, said:

“The pandemic laid the groundwork for rising fraud risk in 2021 as fraudsters learned to use falsified information and identities to benefit from unemployment and paycheck protection programs.

“Now that these government programs have ended, automotive lenders are dealing with an influx of fraud. 2021 was another milestone year for fraud risk, with auto loan fraud estimated to reach $7.7 billion – a number we, unfortunately, expect to continue rising,” Frank McKenna added.

During 2021, the report’s producers identified more than 16,641 suspicious loan applications with a total loan application value of $309 million. These loan applications all appeared to have characteristics of employment fabrication, income manipulation, synthetic identities, or straw borrower manipulations.

The findings represent a 260% increase in loan misrepresentations and suspicious loan application activity identified over 2020.

Tim Grace, Chairman and CEO of Point Predictive, said:

“Digital automation and the move to digital lending is creating unique challenges for lenders. Throughout 2022, we expect to see net losses increase as car prices normalize and pressure on lenders to expand their automation efforts as Gen Z and Millennials become the majority market.

“Credit washing also continues to grow as credit repair companies leverage it as a way to satisfy their customers, inventory scarcity creating more fraud opportunity, and lenders continuing to see higher levels of identity theft on their new originations.”