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Best Practices: How CrossCheck Helps Mitigate Auto Dealership Risk

Posted by Brandes Elitch on Fri, Jul 12, 2019 @ 03:22 PM

auto dealership riskHere at CrossCheck, I am fortunate to attend a variety of payments industry events, such as the CardNotPresent Expo (CNP) last month, and two previous conferences by the Information Security Media Group, the world’s largest media organization devoted solely to information security and risk management. Seminar sessions are offered at most of these events, and the informational sharing is invaluable.

I thought I had a good understanding of the perils involved in accepting payments, but I was very surprised to learn at the CNP Expo that fraud is now increasing auto dealership risk. If your dealership has not experienced a recent uptick in consumer fraud, you are about to, so you might want to read this.

The Scope of Auto Dealership Risk

A recent study by Equifax showed that 76 percent of auto dealerships are forced to handle between one and three fraudulent transactions each month, and another 19 percent estimated they handle between three and five fraudulent transactions per month.data breach phantom mask

It seems that over the last few years we heard of large scale data breaches on a regular basis.

Juniper Research estimates that the global cost of data breaches will rise to $2.1 trillion by 2019. The U.S. alone accounted for almost half of the world’s data breaches in 2017. These breaches compromised personal information belonging to hundreds of millions of consumers. Today, identification claims made with just personal information alone can have low credibility. The fraudster will create a synthetic identity using stolen social security numbers and it is difficult to spot this.

At some point in the future, we will move closer to a digital identity that will have three verification factors: what we know (out of wallet questions such as your monthly mortgage payment), what we have (a credential or trusted ID), and who we are (a biometric such as a fingerprint or voice). We would need a multifactor approach, but auto dealers don’t have anything like that now.

Today the crooks are attracted by big-ticket items like automobiles. Instead of stealing a $1,000 computer online, they can net 15 to 20 times of its cash value using a stolen credit card.

Furthermore, a clever crook with connections can ship stolen cars overseas and make even bigger money. Here are three examples, showing the cost to finance in the U.S and the sale price after shipping and selling in Asia.

Cost to Finance in U.S. Versus Sale Price in Asia

Make and Model

U.S. Price

Asia Price

Mercedes Benz SUV

$118,000

$319,000

Range Rover

$84,000

$241,000

BMW X6

$61,000

$171,000

Projected Auto Dealership Risk

I have seen predictions that fraudulent applications could exceed over $6 billion in value across the auto dealer industry this year. On average, one in every 200 applications may have fraudulent information that could lead to a projections 2019-2020-2021problem with the loan after funding takes place. Even worse, if the dealer is attacked by a fraud ring, one in five loans could be fraudulent! The average loss is predicted to be $24,000 per occurrence. It takes the profit of 10 good loans to recover the cost of one fraudulent loan.

Statistically, for every 200 cars you finance, you will likely have one fraudulent loan. You know that most lenders hold your dealership responsible for fraud and or misrepresentation on applications. If investigators find that there are obvious misrepresentations, the loan could be subject to dealer buyback. This is very bad, particularly since you can’t recover the car.

Another point of concern is that if your dealership does experience higher than typical fraud rates, the lenders will make it more difficult to get financing, which will slow down the approval process and make it harder to close deals quickly. Your consumer buyers will notice this and they will not like it.

Frank McKenna runs a company called Point Predictive that focuses on this exact issue. He has four recommendations for reducing auto dealership risk:

  1. Be aware that it can happen to you and train your staff on what to look for.
  2. Trust your instincts. If you are suspicious, perform a higher level of scrutiny.
  3. Check more than just identity. This means being able to spot employment fabrication, income manipulation, and straw borrowers.
  4. Double-check all the information. Buy an ID checking guide. Get a UV flashlight to spot fake holograms. Make sure all addresses and information match what is presented on the application and the credit bureau report.

an-empty-car-loan-form-with-car-key-and-a-pen-picture-id917522110One in 200 fraudulent applications might not seem like much, but when you consider that many dealerships are running a negative operating margin and living on the OEM holdbacks and other incentives, it puts things in perspective.

And don’t forget that since about 80 percent of car loans today still originate in the dealership, the most important relationship you have (after the OEM) is with your lenders. If lenders start to think your store is not doing its due diligence in processing loan applications, then they will become less responsive, give fewer approvals, and take longer to do so. These are all very bad things from the consumer perspective, which they will write about on Yelp.

At the same time all this is happening, there is a groundswell of interest by consumers in a fully digital sales process.

The Equifax study showed that 45 percent of surveyed dealers reported it still takes between 90 minutes and two hours to complete a deal, with 31 percent saying it can take up to 2.5 hours. Dealers, particularly the F&I office, are trying to get deals closed quicker, but rushing to complete a deal can compromise the verification that is necessary to identify a fraudster.

auto factory

How Can CrossCheck Help Mitigate Auto Dealership Risk?

At CrossCheck, we can help reduce auto dealership risk by identifying a potentially fraudulent application. When we authorize a check, we use a variety of third-party databases which are not available to dealers. These tools enable us to validate a checking account owner, detect new account fraud, access an account history, and get high risk transaction alerts. They include intelligence from telcos, mobile networks, and trusted third-party sources. Data is shared collaboratively among 45 of the top 50 U.S. banks.

risk mitigationWe have thousands of car dealers as clients — from the largest auto dealership in the nation to the smallest of one-store, family owned operations.

They all prefer to take checks for high-dollar transactions because the cost of credit card interchange would eat up their profit on the sale. We stand in at point of sale in real time and make a sale happen by guaranteeing a check or series of checks to be deposited in the future. We don’t guarantee fraudulent checks, but we provide some fraud screening during the authorization process. All in all, CrossCheck’s Check Guarantee service is a win-win for both the dealer and the honest customer, but not for the fraudster.

Download our free guide to learn how Check Guarantee can help increase sales and mitigate auto dealership risk while saving time and money.

check guarantee

Tags: Auto Dealerships