InformedIQ explained another term you can add to your auto-finance vocabulary if you haven’t already: data hallucinations.

These are plausible but incorrect data generated by “off-the-shelf” large language models (LLMs).

According to findings from an industry wide survey about AI and more conducted by InformedIQ, lenders are increasingly wary of generic AI solutions, citing “data hallucinations” and a lack of tangible results as primary concerns.

The developer of AI-based software for income and employment verifications presented survey questions to more than 2,500 auto finance professionals. The findings also reinforced beliefs that fraud levels are reaching new heights.

The online survey conducted in January, which gathered insights from director-level executives and above, also highlighted a growing “AI and fraud fatigue” across the industry.

InformedIQ said the sentiment among lenders has shifted from excitement over AI’s potential to a demand for proven, high-fidelity solutions that can tackle sophisticated modern threats.

“Lenders are no longer looking for futuristic promises; they are seeking immediate, tangible solutions to an escalating fraud crisis,” said Jessica Gonzalez, vice president of customer success and general manager of automotive at InformedIQ.

“The data show a clear disconnect: fraud is becoming more sophisticated — powered by Generative AI — yet the majority of the industry is still relying on manual reviews that are slow, costly, and prone to error,” Gonzalez continued.

Gonzalez also pointed out that the survey also underscored the staggering cost of modern fraud.

More than half of lenders attribute between 10% and 19% of their total annual loan losses or charge-offs to documentary-based fraud, such as falsified pay stubs and identity manipulation.

And InformedIQ acknowledges that this crisis is only accelerating.

Nearly two-thirds of respondents reported that identified fraud increased by 5% to 25% over the past year, while another 15.5% of respondents reported a surge of a quarter percent or greater.

Operationally, InformedIQ noted that the reliance on manual verification is creating significant friction, based on these survey findings:

—Costly reviews: 58% of lenders estimate the cost of manually reviewing a single flagged loan file is between $50 and $100.

—Funding delays: Manual stipulation reviews cause funding delays of 16 to 30 minutes for more than half of all respondents (55%).

—Untapped potential: If lenders could achieve 99% confidence in automated verification, 38% believe they could reallocate more than half of their current underwriting staff to higher-value tasks.

Despite the push toward automation, InformedIQ confidence in current technology remains low.

According to the survey, 55% of lenders described themselves as only “slightly confident” in their ability to catch sophisticated counterfeit documents produced by Generative AI or deepfakes.

The survey also identified a major barrier to AI adoption, as 52% of lenders cite “data hallucinations” as their greatest concern.

Furthermore, InformedIQ acknowledged a massive blind spot remains, as 60% of organizations rarely check historical data to see if a document has been reused across different applications or lenders.

Meanwhile, InformedIQ also mentioned that regulatory anxiety is still high, with 39% of respondents anticipating tougher state-level enforcement and 33% citing increased scrutiny from federal agencies like the Consumer Financial Protection Bureau and Federal Trade Commission.

Beyond auto finance, lenders also anticipate rising document rigor needs in mortgage/home equity (32%) and personal/unsecured loans (23%).

Looking ahead, InformedIQ indicated that lenders plan to prioritize AI investments in credit risk modeling (43%) and fraud detection and prevention (24%).

“The message is clear: the industry is ready for AI-driven modernization — but only from partners who can demonstrate accuracy, compliance alignment, and resilience against fraudulent data,” InformedIQ said.

Before the study findings were released, Gonzalez appeared again on the Auto Remarketing Podcast to describe growing “AI and fraud fatigue” and other topics connected with auto finance. Listen to the conversation in the window below.