Access Denied: Combating Identity Fraud in the Dealership

By Denise W. Branch

In 2024 auto lending fraud losses soared to over 9 billion dollars, up 16.5% from 2023. Faced with these increased costs, many auto lenders have instituted penalties against dealers for losses in which red flags were missed or insufficient steps were taken to identify and prevent fraud deals.  

Many major insurance carriers who have paid out millions in claims are now instituting adverse policy actions in an effort to encourage dealers to shore up their fraud prevention efforts.  More specifically, dealers who fail to properly identify and deter fraud purchases are faced with non-renewal, increased deductibles and/or escalation clauses which increase deductible amounts and reduce payouts for each fraud loss incurred during a plan year.

Lenders and insurance carriers alike are now requiring dealers to invoke more stringent and repeated training of red flag protocols. Though many tech companies are now selling costly products that promise to aid dealers in thwarting fraud, most of these products only alert the dealer to a fake ID; not one that has been stolen or is synthetic.  Reliance on these digital tools alone can result in missed red flags and success for criminals.  A dealer’s best defense against this criminal element is a diligent and well-trained sales and finance staff.  

While fraudsters utilize varying tactics to execute their frauds, there are several common red flags that should warrant increased scrutiny.  There are also scripts and simple requests that sales and finance staff can use to ferret out stolen and synthetic identities.  Dealers seeking specialized training in fraud detection and deterrence should contact a dealer lawyer with experience in dealer operations for training guidance and materials.

This article is not intended to provide legal advice.  If you have any questions related to this article, please contact Denise W. Branch for more information.