Lee Cookman, director in the fraud and identity solutions department at TransUnion, described how auto finance providers are having an “awakening.” It’s one likely more jolting than that 4 a.m. wakeup call in order to catch the first flight of the day.

The startling alarm Cookman and TransUnion found blaring is the spike in auto finance fraud stemming from synthetic identities; a figure that’s jumped from $143 million at the end of 2012 to $504 million when 2017 closed.

“It’s had massive growth over the last five years,” Cookman said during a recent phone conversation with Auto Remarketing.

“I think it surprised a lot of folks when we talked to them,” he continued. “They’re not shocked to hear about credit card fraud, but they are a bit more surprised when you talk about using a synthetic identity, one that’s not a true identifiable identity, but just a credit profile for the purpose of acquiring an auto loan.”

Fraud in auto finance constituted the largest portion of the overall amount tracked down by TransUnion. Cookman and his team found outstanding balances of suspected synthetic fraud identities increased 6.6 percent to $885.42 million in Q4 2017, up from $830.25 million in Q4 2016 for auto loans, credit cards, personal loans and retail cards combined.

*Source: TransUnion

For individuals unfamiliar with synthetic identities, Cookman explained how sophisticated hackers take credit ingredients and start marinating a profile that appears genuine, especially at first glance.

“In the cases I’ve reviewed and looking at our data, looking at public record data we have, looking at the linkages in the cases of fraud, there are some really sophisticated scenarios where I can see up 10 identities that are linked back and probably all share a common root,” Cookman said. “Then, they have $500,000 in losses across various lending products.

“Those folks are pretty sophisticated. They’ve got a process down. It’s fraud for a living. They do this every day, all day, and they know how to monetize it well,” he continued.

Both Cookman and Brian Landau, senior vice president and automotive business leader at TransUnion, mentioned during the phone conversation about how rings of online criminals sometimes acquire a collection of vehicles — oftentimes high-end luxury models — and gather them with the intension of sending the units overseas, making detection and possible recovery even more difficult.

Landau pointed to another possible reason fraud has spiked.

“I think a lot of them were masked because over the last six or seven years as we’ve had such amazing growth in auto, and some of the policies and procedures that typically have been put in place have been relaxed somewhat if you will, because the focus was on growth,” he said.

“I think it’s taking up more share of the lenders’ minds, especially with balances not growing as fast as they once were as lenders are pulling back and tightening their underwriting standards. There is more of a shift to preservation,” Landau added.

And it’s not just fraudsters looking to collect a dozen BMWs for shipment to somewhere in the Middle East. Cookman also explained how fraud is sometimes committed by an individual with a damaged profile — either within their credit or criminal background.

“Some are taking bad advice from credit repair agencies,” Cookman said. “You have something bad in your past from a credit perspective like bankruptcy, and it’s going to take you too long to rebuild your credit. ‘Pay us a little money, and we’ll give you a credit profile number that looks like a Social, and it’s totally clean.’ They will tell you it’s totally legal, and you can go build a new credit profile with it that’s way faster than waiting for bad stuff to drop off. Or maybe you have a criminal history. They’ll say, ‘Just follow this process, and you can go get it.’ They build a credit profile that’s based on fake data that’s not their real identity.

“There are many of those cases as well, where they can’t or don’t want to use their real identity, and they go this way to acquire products, which is equally fraudulent because the lender on the other end is lending to someone who is not who they think it is,” he went on to say.

The TransUnion team insisted it has been trumpeting the importance of fraud detection and prevention as far back as the 1980s with tools such as Social Security Number authentication.

As part of this commitment, TransUnion introduced 25 new IDVision Alerts and data enhancements to its current collection of alerts, including new alerts for possible synthetic fraud, new or recently created identities and social security numbers that may be compromised. In total, TransUnion IDVision Alerts now provide more than 65 notifications to businesses about high risk, suspicious identities and other potentially fraudulent activities.

IDVision Alerts are part of TransUnion’s IDVision suite of solutions, providing businesses with a holistic approach to fraud and identity management that minimize consumer friction, protect brands and maximize revenue.

“IDVision Alerts deliver new types of information within minutes of a loan application and are developed to capture today’s new and more sophisticated fraud schemes,” Geoff Miller, head of global fraud and identity solutions for TransUnion, said in a news release. “It also delivers new alerts that address mandatory red flags and know-your-customer — KYC — compliance requirements.”

“Our proprietary algorithms have been proven to better understand which consumers are truly fraudsters — helping to ensure consumers with no intentions of fraud are seamlessly on-boarded,” Miller continued. “This not only benefits the consumer, but clearly the lender as well.”

When it’s clear the person is who they say they are and the credit profile is confirmed, Cookman pointed out how that not only leads to a more robust addition to an auto finance company’s portfolio, it can also prevent another potential pitfall stemming from fraud vigilance.

“The impact of false positives can be very negative in the market, and you could be hurting consumers,” Cookman said.

If you focus too much on a binary thing, saying I can catch them by using this one particular attribute, say they were older than normal when they opened their credit profile, OK, that’s interesting, but you can have a lot of false positives,” he continued. “You have to layer it with all of the big data assets that’s available at your disposal and process them in real time to try to find that very narrow population that’s in question, so you can empower everyone to still have that good iPhone experience that you want to get for the 99 percent of trustworthy people who are coming.”

And Landau reinforced that it’s not just finance companies that need to be aware of fraud. He stressed that where vehicles are retailed is equally important.

“We also have to consider that the dealer is part of this ecosystem,” Landau said. “The indirect model is not going away any time soon. We need to make sure their part of the process and be aware of why someone might not be approved due to potential fraudulent profile. Educating dealers will be a keystone as we continue to shift to more fraud prevention in the future.”

For more information about IDVision Alerts, go to this website. Additional details about synthetic fraud, including a case study, can be found here.