Fraudsters are increasingly targeting the auto financing sector, with TransUnion research showing fraud costs lenders more than $500 million in the third quarter of 2025.
Driving the news: In studying fraud in the auto loan sector, TransUnion uncovered that first-party fraud, in which an individual deliberately provides false information or misrepresents themselves to obtain goods, services, or credit, almost increased fourfold in seven years from $88 million to $323 million.
The losses from first-party fraud have declined slightly since its height at $399 million in 2022.
But third-party fraud from someone using another person’s identity more than doubled from $18 million to $47 million.
Additionally, synthetic fraud, where fraudsters utilize fake data and documents, grew from $93 million to $208 million.
“Fraudsters are coming to the auto industry simply because there's just a bigger pot to go after with the auto transaction, the average amount financed approaching $50,000 now,” Satyan Merchant, senior vice president and automotive and mortgage business leader at TransUnion, told CDG News. “There's just more reason for a fraudster to come attack this segment of the lending market.”
Zooming in: In the past year, total losses have dropped slightly, with lenders and dealers paying extra attention to processes and documentation, according to Merchant.
Third-party fraud is the lone category to grow in the past year from $45 million to $47 million in losses.
Interestingly, the third-party fraud incident rate is less than half as prevalent as in 2018.
Breakdown of risk tiers: The TransUnion research, surprisingly, shows an increase in losses per incident in the higher risk tiers, with super prime average loss at $40,031 as opposed to subprime ($15,909) in first-party fraud.
Notably, in analyzing 60-day delinquencies, the fraud risk incidence percentage per risk tier was nearly the same as the credit risk charge-off.
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Credit washing: The distortion of credit information in scoring was another type of fraud TransUnion highlighted.
For context, credit washing artificially boosts the creditworthiness of applicants, concealing negative tradelines.
TransUnion found that 5% of consumers had a charge-off (an unpaid debt written off by a lender) disappear from their credit report for atypical reasons.
Subprime customers who used credit washing went on to default within 12 months at a rate of 14.8%. Prime customers who did the same defaulted at 5.6%.
Role of AI in fraud: Merchant said AI tools are being used by lenders to score loan applications and detect abnormalities such as the overuse of a specific address.
That said, AI can also be used to undermine the underwriting processes, including providing fraudulent data.
Bottom line: Fraud impacts the auto industry throughout, and due to the price of vehicles, remains a larger target than some other industries, according to Merchant.
“Detecting and preventing fraud is a continued partnership between the lenders and dealers in the ecosystem. Both are served to stop the fraud,” Merchant said. “Dealers need to be open to working with their lender partners to make sure that they can adapt to new types of fraud detection and prevent these fraudulent practices.”
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