More consumers have become delinquent with their auto loan payments than in years prior, with the total value of past-due loans reaching $23.3 billion dollars, according to the Federal Reserve.

Early payment defaults are a growing portion of this significant problem. In fact, according to PointPredictive Inc., EPD rates (loans that default within the first year without making any payments) can be as high as 3 percent on some lender’s portfolios. And many of those defaults have been linked to fraud. Data analysis reveals that between 30 percent to 70 percent of EPD loans contain fraud misrepresentations on the initial application that could have lead to the losses.

Most Auto Lending Fraud is Unknown Today

The problem with auto lending fraud is that most losses are due to first-party fraud where borrowers, dealers or fraud rings lie about the income, employment or collateral value or perpetrate a straw borrowing scheme—when someone else’s name and financial history is used to purchase a vehicle that they do not plan to own and possess. These are hard to detect, and so they often go unnoticed in the origination process and in many cases are never detected, even when the loans inevitably default.

Known fraud is identified either before an auto loan is originated or shortly afterward, when a borrower notifies the lender of identity theft or a lender discovers the fraud in its collections process. Known fraud is more common than you might expect, present on approximately 0.30 percent of originated application volume.

 

continue reading »