Identity fraud can take ‘enormous toll’ on your dealership profits

There’s not much question that identity fraud is an important issue for businesses, including automotive dealerships.

Last year alone, nearly 10,000 reports of identity fraud related to auto financing and leasing were compiled by the Federal Trade Commission, or one for every 3.7 dealerships in the United States, and a 43 percent increase over the previous year.

But with odds of only one in four, why should you worry about identity fraud?

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“You should be concerned with fraud because of the hit your profits can take,” wrote Frank McKenna of PointPredictive consulting firm in a recent Digital Dealer Magazine report. “Car dealerships that have had a problem with fraud in the past report that it can take an enormous toll on their profits.”

McKenna wrote that it can take the profit of 10 good loans to recover the cost of one fraudulent loan. Although that figure could be even higher based on average cost data – around $25,000 per vehicle – from the U.S. Bureau of Economic Analysis and average gross profit data – ranging from $2,000 to $2,500 – from the National Automobile Dealers Association (NADA).


Part 1: What you need to know about fraud risk – and why you should care

And the more finance applications your dealership submits, the greater your chances of falling victim – unless you take (or have taken) steps to change the odds in your favor, of course.

Santander Consumer USA’s Driving a New Model | A dealer guide to recognizing the warning signs of fraud, identifying suspicious buyers and taking action to reduce costs suggests what to look for and how to reduce identity fraud risk at your dealership:

The Red Flags

  • Consumer or service member alerts on credit report.
  • Social Security number (SSN) issued within the last five years.
  • Recently opened trade lines, thin file or credit history, and a high number of inquiries in the recent past with no new accounts opened.
  • Applicant is listed as an Authorized User – Not the Primary Account holder on multiple accounts. Fewer than 3 primary accounts.
  • Discrepancies and/or inconsistencies between a credit application and credit bureau report.

And the Checklist

  • Examine and thoroughly review government identification for any suspicious conditions – tilted font lines or evidence of physical damage on a driver’s license or state ID, for example – and match the SSN to first and last name on the driver’s license or state ID.
  • Match government identification to details on the credit bureau report.
  • Ask dynamic, knowledge-based questions about specific trade lines from the credit bureau, such as “Who financed your last vehicle?” and “What is the payment amount?” This may help us confirm we are speaking to the actual applicant.
  • Compare the customer personal attributes to the credit bureau report – does the age seem appropriate to the person with whom you are speaking, for example.

“Santander Consumer USA (SC) is committed to working with dealers to raise awareness of fraud and elder-abuse risks in the retail auto space,” says the brochure, Driving a New Model, which was created by SC’s fraud management group. “[And] watching for red flags is the most cost-effective way of preventing fraud and reducing expenses related to fraud, reputation, regulatory and financial risks.”

This series, Driving a New Model, is aimed at helping dealers spot the red flags for identity fraud, application misrepresentation, straw buyers and elder abuse, and includes actionable checklists.

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