CLAIM ALERT: Retail Credit Fraud/ID Theft Prevention for Dealers

This is an important claim alert to retail insurance agents that currently insure auto dealerships.  Download and share these tips with auto dealer clients to help reduce losses and keep insurance costs down due to the increase of False Pretense/Identity Theft claims.

Retail Credit Fraud/Identity Theft (“Credit Fraud/ID Theft”) continues to be a major threat to businesses and consumers, showing no signs of abating even in the face of sophisticated anti-fraud countermeasures.  According to Javelin Strategy & Research, 5.56% of people were identity fraud victims in 2018—which roughly translates to 1 in 18 consumers.  In general, 33% of U.S. adults have at some point experienced some type of identity theft, more than double the global average.

For car dealerships nationwide, Retail Credit Fraud/Identity Theft is fast becoming a serious area of exposure and loss, with some estimates placing annual U.S. auto loan fraud as high as $6 billion.  It’s generally defined as “the fraudulent purchase of goods or services with falsified credit or other necessary information or the use of another person’s identity without his/her knowledge and consent.”

Risk vs. Reward

The reason: criminals can net exponentially greater profits from illicitly acquiring high-ticket vehicles and selling them overseas—sometimes for as much as 15 to 20 times the cash value than from simply stealing credit card numbers.  By providing fake information on car loan applications, a criminal can profit as much as $250,000 or even more by shipping these illegally acquired luxury/high-end cars to markets abroad.

With the stakes so high, fraudsters are resorting to increasingly sophisticated techniques and schemes, such as synthetic identity fraud (a type of fraud committed using fake information, combined with real and often stolen data, to create a fabricated identity), which is relatively new, complex and difficult to detect.

Prevention Checklist: Credit Fraud/ID Theft

The following steps can help reduce Credit Fraud/ID Theft losses:

  • Incorporate Credit Fraud/ID Theft prevention steps into a sales checklist.  The completed checklist should be reviewed and signed by the Sales Manager prior to releasing every vehicle.
  • Verbally review the customer's name, Social Security Number, date of birth and address information on the credit report versus the credit application and other key identifiers (i.e., driver’s license, pay stubs, signatures).
  • Question multiple credit bureau inquiries within the last 30 days.
  • Confirm the accuracy of the number of months the applicant is listed on the credit bureau file(s).
  • Verify employment by contacting the employer directly and requiring a pay stub.
  • Verify insurance coverage by contacting the agent/insurance company directly.  Request and document the policy number.
  • Verify funds at the bank and the date the account was opened.  Review all Warnings or Notes given.
  • Utilize check or credit card verification services, especially for out-of-state checks or customers (i.e., Tel-a-check, Certegy).
  • Request a cashier’s check or certified funds for large down payments.
  • If you have any concerns, request additional information such as a utility or property tax bill to confirm the applicant’s home address.
  • Request two sources of identification for all vehicle sales, including at least one government-issued photo ID (photo copies of government-issued IDs are not acceptable).
  • Verify that the final signature matches on all documents.
  • All co-applicants should meet the same requirements as the primary applicant.
  • Swipe or run the customers' driver's license through your credit card approval machine in order to verify the validity of their license (check with your credit card service for availability).

Business Applicants

  • Request a copy of the typed Articles of Incorporation/Organizational Agreement for any Company/Corporations/Partnership/Limited Liability Companies (handwritten documentation is a red flag).
  • Be cautious of secretarial certificates attesting to officer/manager status where the corporate secretary and the officer are the same (i.e., look for the involvement and separate signatures of at least two individuals in the preparation of the certificate).

Warning Signs During Application Process

Pay attention to the following “red flags” during the buying or loan application process:

  • 100% internet/over-the-phone credit application
  • Cell phone number with unfamiliar area code
  • Cash down payment higher than normal, or unusual terms
  • Offer to purchase multiple vehicles by persons unknown to the dealer
  • Brokered deals
  • Out-of-state driver’s license/being out-of-state
  • Company check used to purchase vehicle
  • A walk-on customer enters the sales lot without a vehicle
  • One or two people are dropped off at the dealership
  • Knows the exact car they want to buy
  • Uses their phone frequently to communicate with someone throughout the transaction
  • Rushes the deal; wants to drive the vehicle off the lot the same day
  • Insurance policy issued the same date of the vehicle purchase
  • Insurance provider only confirms the existence of a binder for the applicant
  • Thoroughly review alerts, cautions, and warnings on credit bureaus

Unfortunately for auto dealers, the harsh reality is this—it’s not a question of if they become a target for application fraud, but when.  According to Digital Dealer, the data indicates that on average, 1 in 200 financing applications could contain fraudulent information, leading to a problem after funding.

By reviewing the above warning signals and incorporating these preventative measures into your daily business practices, dealers can make a significant impact on Credit Fraud/Identity Theft losses.


Download our Loss Prevention Reference Sheets for Dealers

Click to download All Risks’ helpful reference sheets for dealers (PDF format), which includes the Credit Fraud/Identity Theft warning signs, prevention checklist, and Social Security Numbers by State/Province.

Download the Reference Sheets

Legal Disclaimer: Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.