Slippery Synthetic Fraud Increasingly Occurring in Dealerships

The harsh reality of the crime known as synthetic identity fraud threatening auto dealerships is how damaging it can be if these fraudsters are successful without detection.

Synthetic fraud in 2019 was costly to dealers and their lenders – $69 million. The evidence we see, which is supported by Experian and others, is that incidents of synthetic fraud are on the upswing.

My advice is to take heed against this risk and learn how to protect your dealership from this hard-to-detect (and remedy) crime.

This crime is a different type of identity fraud. It is not perpetrated by run-of-the-mill cheaters, the consumer hoping to shine up his or her buy-ability by fudging work history or income.

Instead, these fraudsters present having the right stuff to verify their identity and creditworthiness – the type of buyer that seems a shoe-in. The problem is, the social security number, employment history, credit, address and other forms of I.D. presented isn’t theirs – it’s a homogenization of yours, mine and your granddaughter’s.

The Carnegie Mellon CyLab reports stolen children’s SSNs are used for synthetic frauds 51 times the rate of adults because of the “unique value of unused Social Security numbers.”

Unless your dealership is using synthetic fraud detection technology, it’s unlikely that even the most diligent finance director will catch on when the dealership is being defrauded this way.

Then, with the deal done, the new “owner” drives off having no intention of paying the loan – and laughing on their way knowing he or she has left behind no tracks.

Stop this Fraud
Some dealers mistakenly believe that the Red Flag identification methods detect synthetic fraud; Red Flag does not. These fraudsters have built/created credit files that are in line with the identity they are presenting at the point of sale. To isolate synthetic fraud, the detection technology must go deep into the “buyer’s” credit history to identify unusual credit behaviors and relationships – for instance, who else is listed on the credit history that might foretell of manipulation.

Synthetic fraud protection offered by 700Credit compliance software, for instance, detects such identity fabrications and alerts F&I. Thus notified, the manager should ask the buyer for more clarification or proof of identity before proceeding with the transaction.

Asking suspected buyers tough identification questions or to sign documents allowing the dealership to have the presenting SSN verified by the Social Security Administration will usually send them packing.

Yes, this questioning could offend some legitimate buyers, but dealers agree that risk is manageable given the value of the asset in consideration.

As more vehicles are financed and purchased online through digital dealerships, dealers’ ability to sift out synthetic crime from these channels will be increasingly valuable to them, their lenders and their mutual, honest customers. Dealers are encouraged to take another look at available technologies to identify synthetic fraud when it is practiced against their dealership. 

by Ken Hill, Managing Director, 700Credit

khill@700credit.com

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