A contributory database where lenders share knowledge helps the industry reduce fraud. Recent trends highlight the importance of lenders collaborating to address fraud before funding. Utilizing a feedback loop and multi-channel fraud checks increases Informed’s accuracy in stopping fraud. Fraud is not lender specific and significantly impacts the banking industry. As loan originations shift to digital, income and employment fraud rises, costing lenders billions each year. One area – employment and income fraud – cost auto lenders $4.7B in 2021.
Financial Services Information Sharing and Analysis Center is a financial services cyber intelligence collaborative. They leverage their intelligence platform, resiliency resources, and peer-to-peer network to anticipate and mitigate cyber threats. Networks like theirs fight fraud as a community.
Within the auto industry, police departments launched grassroots efforts to stem fraudulent activities, such as vehicle fraud and auto theft divisions to train local lenders. Houston’s Vehicle Fraud Unit prevented $740,000 in fraudulent vehicle purchases. They focus on ID scanning devices and identity theft, a crime that can result in felony charges. However, because they focus on identity theft, there is fraud that can go unaddressed and is critical for lenders to ensure consumers can repay loans: paystub fraud. People report fake income and support it using fake documents which affects credit risk and portfolio performance.
What is paystub fraud?
Paystub fraud is increasing, and the same tactics used in phishing emails are used to commit paystub fraud. Unlike ID cards, where IDs are standard and government-issued, paystubs are issued by any company. This makes the problem exponentially harder. You can’t just call a government entity to verify a paystub.
You have to watch a growing list of fraudulent paystub sites to catch fake documents without causing borrowers inconvenience. You don’t want to blame an innocent consumer for faking a document. Lenders also have to weigh a 90% increase in delinquency [within first 60 days] if income is overstated. Fraud detection is complex and requires timely reporting, consistent identification, and implementation of lessons learned.
How common is paystub fraud?
We see a 2.25% average fraud rate; however, when viewed by lender, there are outliers with fraud rates between 10-12% With additional fraud controls – automated paystub checking and paystub accuracy – fraud is significantly reduced as well as its potential business impact.
What can you do right now? Report fraud: https://reportfraud.ftc.gov/#/
If you’re interested in hearing more about Informed, I’ll be speaking at Bank Automation Summit on September 19 at 11:45 AM PST and head over to our booth to connect with a member of the team.
-Jessica Gonzalez, Director of Auto Lending at Informed.IQ
