Fraud has been rising for nearly a quarter century. Fraud has increased each year since 2000, according to Jim Cochran, Association of Dealership Compliance Officers (ADCO) board of director and former Hendrick Automotive Group director of compliance. The Federal Trade Commission (FTC) reported consumers losing more than $10 billion in fraud in 2023.
Dealers must guard against abundant fraud varieties and schemes. Cochran said it is the dealership’s responsibility to verify a consumer’s identity.
In ADCO’s recent “Unmasking Fraud” webinar, Cochran provided details on compliance fraud alert indicators and steps dealers can take to expose fraud in its early stages
Fraud alerts are triggered when a consumer completes the credit application, and the information does not match the credit report. Penalties can range up to $3,500 per occurrence.
According to Cochran, there are four categories that trigger fraud alerts.
Address Discrepancies
The first category is address discrepancies. To validate a consumer’s address, dealers need a recent document with the address, such as a phone bill, a mortgage statement or a utility bill. Cochran said not to use a driver’s license. He said, “The driver’s license is the easiest thing to duplicate and to make it fraud.”
Cochran said dealers should not move forward without the proper documents. Many documents such as these are available in online forms.
Social Security Discrepancies
Another category regards Social Security numbers. Cochran said these discrepancies often occur when the wrong number is accidentally entered by a manager. To verify the document, a manager needs a Social Security card, which is also available in a digital version. The dealer can then re-enter the number and run the report again.
Credit Freeze
The third category is a credit freeze. If the consumer has frozen their credit, the manager cannot pull a report until the credit thaws. Dealers need credit to be unfrozen in order to generate out-of-wallet (OOW) questions for the report. The OOWs are security questions dealers can use to verify a consumer’s identity if a red flag is triggered.
Fraud Alerts
Fraud alerts occur when information on the credit application does not match the credit report.
To address fraud alerts, dealers can ask OOW questions. If they answer correctly, a manager can override the alert. Cochran advised always keeping notes when overriding, to document precautions that were taken.
Synthetic Fraud
Cochran said additional steps should be taken against synthetic fraud. This type of fraud consists of real and false information. According to Cochran, actors spend years growing the false credit.
To safeguard against instances like these, Cochran advised training salespeople to listen to key aspects in consumer conversations. At Hendricks, he taught salespeople to ask certain questions during the buying process when the salesperson is building consumer rapport.
“If they are telling you the truth, it will tie in with what they told you during the first 20 minutes of building rapport with the customer,” Cochran said. “If they are lying about it, the story will change.”
If stories change during the credit application process from earlier conversations, sales members can alert finance managers.
When alerted to such instances, Cochran said managers should conduct deeper investigations. He said to look into the consumer’s social media accounts and call their employer. When calling an employer, Cochran said dealers should ask what the applicant looks like and their personality, in addition to verifying employment.
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