Total auto delinquencies are down 10.9% year over year, with accounts 60-plus days behind at 1.7%. But lenders are paying attention to those accounts falling behind early as signals of possible fraud.
Driving the news: In its Auto Insights Report for October, Equifax noted the concern for lenders on early payment defaults.
Some of the defaults were credited to “fraudulent applications, organized fraud rings, consumers who are unfamiliar with their obligations, or consumers who simply are not able to make the payments.”
Warning signs: Equifax offers a Credit Abuse Risk Model to identify applicants who are more likely to miss a payment within the first six months.
Equifax pointed out that in the super prime tier, “bad rates” are “79 times higher” for the high-risk group (7.9%) than the low-risk group (0.1%).
No other tier has as high a default rate with “high credit abuse risk.”
Subprime has a 5.3% high credit abuse risk default rate, and deep subprime 6.1%.
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Types of fraud: Barrett Teague, vice president of Auto Lending Sales for Equifax, noted the fraud activity in the auto space includes falsifying information on credit applications, first-party and second-party fraud, and synthetic credit washing.
Will Holleman, vice president of Verification Services, Auto at Equifax, told CDG News that dealers and lenders should be using tools to verify not only income and employment but also identity.
“The more data you have earlier in the process will allow dealers and lenders to surface some of these issues that they see with borrowers and start to figure out, 'Hey, this person might be fraudulent, or this person doesn't make enough income.’ And it's more efficient for everybody the sooner you get that information, the earlier in the process,” Holleman said.
Bottom line: Fraud continues to be part of the auto lending industry and impacts the industry as a whole. Dealers need to work with lenders to make sure loan applications are accurate and, with applicants of higher risk, either decline the application, increase the down payment, or verify income and employment.
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