MARLBOROUGH, Mass.-When it comes to fraudulent account-opening via indirect auto lending, one person says that there's no need for greater concern than there would be with any other new account.
Phil Maniaci, eastern regional VP at Credit Union Direct Lending (CUDL), noted that while credit unions continue to add scores of new members as the result of indirect loans, new technologies and new laws, such as the Patriot Act, have created greater safeguards, including at auto dealerships.
Maniaci noted those same dealers also have a self-interest in guarding against fraud, "because the dealers have fist crack at this thing before they pass those applications and those loans on to the lenders."
Still, he reminded it pays to be wary, as it does in any other line of business. Maniaci recalled an incident in the 1980s when a credit union received several loans from the same dealership with borrowers claiming the same employer. "On the surface it could be a lot of referrals coming from the first person who bought a vehicle at this dealership," he said, "but with doing proper back-checking, we found that in this particular case we'd financed about a half-dozen vehicles for an employer that didn't exist."
The point, said Maniaci, is that while a half-dozen loans may not seem like much, the losses add up quickly with each vehicle. Maniaci stressed that CUs keep their eyes peeled for anything that could be a trend-even something as simple as a series of indirect borrowers with the same employer.
Need For Tight Contracts
"As the secondary purchaser, the credit union is taking the dealership at their word," said Maniaci. "So having a tight contract where they can go back to the dealer and recoup any losses they may incur" is critical."
Beyond that, he recommended looking for any trends or aberrations from particular dealers or, in the case of larger CUs, regions. Maniaci noted that as much as 70% of credit unions' indirect lending comes from with the used car market, so increases in new vehicle business from a particular dealership should also raise some red flags.
Maniaci suggested multiple strategies for combating fraud, including services that help protect members against identity theft, and effectively using credit bureaus' technologies to crosscheck the ID of an applicant.
The credit unions themselves can also help by carefully policing their loans. "A lot of credit unions can improve on their follow-up on collections of the first payment defaults," said Maniaci. The more quickly CUs catch on to the fact that a borrower has no intention of repaying a loan, he said, the sooner they can start the process to get the vehicle back and sell it at auction.
