US Car Dealers Confront Another Growing Threat: ID Fraud

With the summer holiday season approaching, many consumers are planning road trips and vacations, which often include car rentals. Late spring is also prime time for a high volume of car sales, resulting in surging credit applications to help purchase these vehicles. In either scenario, preventing fraud plays into a smoother ride for all parties. Identity verification to prevent fraud helps ensure delays with car rentals do not hinder customers. It also helps protect lenders and dealerships from fraudulent purchases.

“Steering Clear From Fraud: Identity Verification for the Automotive Industry” is the second edition of the Identity Verification Series, a collaboration between PYMNTS Intelligence and Intellicheck. It explores fraud and verification issues in the automotive industry, detailing current and future technologies and legislation surrounding prevention.

Fraud concerns grow

Auto lenders are growing more concerned about fraud.

Encountering fraud is a reality for the nation’s auto lenders. One in 4 of these lenders cite it as more of a concern this year than last.

It is little wonder that the prospect of fraud looms over lenders: Nearly $8 billion in originated auto loans contain fraud or misrepresentation annually. Also, external research found that auto lenders’ top priorities in the last year were countering the threats of income and employment fraud. Misrepresentation by potential buyers is the largest threat faced by auto lenders in the last year — and for good reason. Approximately 43% of fraud and risk for auto lenders occurs when potential buyers fabricate or inflate income or employment. Such misrepresentation tends to surface early on. Up to 70% of early payment default (EPD) loans contain evidence of misrepresentation on the original loan application.

Key types of fraud

Synthetic identity fraud — in which fraudsters create a fake identity by combining real and fake identity information — is skyrocketing as auto lending becomes a prime target of illicit actors. In fact, incidences of these attempts increased by 98% last year, according to the 2024 Auto Lending Fraud Report.

Further, auto lenders will need to become aware of new types of fraud growth this year. Credit washing, the practice of consumers attempting to hide negative information in a credit report by falsely claiming identity theft, is expected to increase by 30% this year. This new headache, also known as “soft fraud,” is driven by growth in illicit credit repair activity.

Download the PDF for the full report