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Synthetic Fraudsters Target Dealers
“Fraud is evolving at such a speed that educating staff isn’t enough,” says Modives’ Russell Barner.
4 Min Read
Equifax reports 59% increase in synthetic fraud since 2020.Getty Images
“Those that fail to learn from history are doomed to repeat it" —especially when it comes to fraud in retail automotive marketing.
Dealers who think that the June ransomware attack on Findlay Auto Group, Henderson, NV, the synthetic fraud scams played out at numerous dealerships, including Autobahn, Fort Worth, TX, Infiniti of Coral Gables, FL, and similar frauds, are unlikely to occur at their stores are at risk of making the above Winston Churchill quote a reality.
Remember, synthetic identity fraudsters can be tricky to spot because they combine actual information with false details to defraud businesses. Identity theft differs because it involves a criminal posing as someone else.
“As the (pandemic relief) programs have dried up, now we’re seeing this big rush of (other) fraud, and the auto industry is actually the most at risk when you look at all different industries. That’s because we’re dealing with high ticket items,” Michael Byrd, chief revenue officer at Informativ, tells WardsAuto. “A vehicle (sale or lease) has a relatively short closing cycle and a chance to move the needle quickly with multiple vehicles (being taken by teams) potentially at one time.”
Equifax reports a 59% increase in synthetic fraud since 2020, with the automotive sector a main target due partly to the mobility of stolen vehicles that prevent recovery. The high volume of compromised identification information, the auto industry’s move to digital transactions, the high price of automobiles and increasingly sophisticated technology are among the reasons fraudsters target dealers.
Many synthetic identity fraudsters scammed pandemic relief programs like the Paycheck Protection Plan. Since those programs are defunct, the fraudsters have turned to other victims.
Real-Life Synthetic Identity Frauds
Security experts say that synthetic identity fraud comes in many forms. Here are some of the scenarios shared with WardsAuto:
One dealer, who asked not to be identified, tells WardsAuto that a fraudster using a verified Social Security number falsified their name, address and date of birth. The person poses as a resident of a different state that would not require him to pay sales tax on an automotive purchase. When auditors caught the misstep, the dealership had to pay the tax.
Jim Maguire, senior director of production marketing for automotive at Experian, says that sophisticated fraudsters buy a car and initially make a payment, which makes lenders and dealers think the transaction is legitimate.
“They’re simply stalling to dispose of the vehicle for profit. Often this delays the start of the investigation until the vehicle is long gone,” Maguire tells WardsAuto. “In other cases, some are looking to get the vehicle off the lot and disappear as fast as possible. Either way, automotive fraud is essentially a slow-moving vehicle theft that affects everyone along the way.”Byrd outlines several synthetic fraud scams, including “car stacking. They’ll actually go to multiple dealers in a short period of time, and they’ll get deals working at multiple dealers,” with one form of synthetic identification, he tells WardsAuto. “Usually, they try to close (the deals) at the same time, and they have no intention of ever paying. They get away with those vehicles.”
Many dealership and lender processes contribute to synthetic identity theft opportunities. Although F&I managers are continually reminded to speed up the sales process, verifying a customer’s identity and confirming that the customer’s insurance coverage is up-to-date is generally time-consuming.
“The (verification) process that exists today is a phone call to the insurance company to verify,” says Russell Barner, chief product officer of Modives, whose applications include CheckMyDriver. “We have moved that forward to instant verification; it makes it frictionless for the end buyer.”
Whether dealers choose CheckMyDriver or similar offerings from Experian, Cox Automotive, CheckMyDriver’s parent company Informativ or numerous other vendors, moving away from in-house verification is a smart move, says Maguire.
“Fraud is evolving at such a speed that educating staff isn’t enough,” he says. “You have to combat technology with technology.”
Maguire adds that Experian recommends its dealer clients “lean into a multi-layered approach when it comes to fraud.” Experian's suggestions include:
Check every deal for fraud, even deals with existing customers.
Use vehicle history reports to evaluate the legitimacy of trade-ins.
Leverage advanced document and identity verification, such as driver’s license validation and mobile device intelligence (i.e., one-time passcodes, IP address verification, etc.).
Not all fraud is perpetrated equally. Understanding each fraud scheme better positions dealers to take the best approach.
Engage with valued law enforcement partners.
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