Auto loan income and employment fraud fell a combined 26 percent in 2022 but the scams still represent about 43 percent of overall fraud risk to auto lenders, Point Predictive wrote in its 2023 Auto Lending Fraud Trends Report released in June.

In addition, “the types of income and employment fraud that did occur were more professional, including the use of well-hidden fake employers and better paystub forgeries,” Point Predictive said.

A separate Point Predictive study conducted in December and January found income representation to be lenders’ No. 1 concern for 2023, cited by 20 percent of financial institutions. Employment misrepresentation ranked fourth, a worry of 14 percent of lenders. (Dealer fraud was third, at 15 percent.)

Interestingly, the decline in auto loan income and employment fraud appeared in a year Point Predictive called the worst for affordability of the past five years.

Point Predictive estimates 21 percent of auto loan applications have a material income misrepresentation. Every week, the fraud prevention provider finds another 50 to 60 shell companies created for fake employer scams. Fraudsters will use the names of legitimate companies in employment fraud. Overall, 40 percent of all loans with fake employers end in a charge-off for the lender, according to Point Predictive.

Lenders find dealers rather than customers to be the culprit in about half of their income fraud incidents. Point Predictive Chief Strategist Frank McKenna said this percentage represents a broad industry issue rather than stemming from the concentrated volume of a smaller group of bad actors.

Lenders might discover the dealership’s role in income fraud on a customer verification call, McKenna said.

He described a hypothetical borrower who receives such a call from a lender seeking to confirm the customer’s income. The customer reports their income only to be told the application shows a different amount. The customer replies: “I don’t know; the dealer filled the application out for me.”

Dealership employees don’t realize that inflating income constitutes fraud, according to McKenna, whose company has been working more with retailers lately. Often, the staffer views it as, “ ’I’m just helping the customer out,’ ” McKenna said.

Retailers also might play a role in employment fraud. According to Point Predictive, if a lender often sees the same employer information from one dealer “it’s a clue they might be using recycled and fake employment information.”