Santander sign outside a branch.
Signage is seen during an event to rebrand Sovereign Bank NA to Santander at the company's first bank branch in New York, U.S., on Thursday, Oct. 17, 2013. Sovereign Bank, four years after it was bought by Banco Santander SA, will begin changing its name at 32 branches throughout Connecticut and another 673 throughout the Northeast as the rebranding campaign is launched. Photographer: Ron Antonelli/Bloomberg

CUs working to stop fraud in wake of Santander allegations

The Massachusetts attorney general’s office recently alleged subprime auto lender Santander Consumer was aware of widespread fraud inside of auto dealers but did little in response. The eye-popping charges are shining a light on the hard-to-measure problem of auto dealer fraud, while also raising questions about the adequacy of lenders’ efforts to combat bad behavior. At CU Direct’s recent DRIVE Conference in Las Vegas, Credit Union Journal asked what CUs are doing to monitor for and root out dealer fraud before it becomes a problem for their institution.
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Misty Woolridge, VP of consumer lending for $189 million Red Crown FCU, Tulsa, Okla.

We contact the applicant before we approve the deal. You know which dealers you can trust, so we depend on that. In certain cases – such as an applicant who only has Social Security income – we want proof of that income regardless of the person’s credit score.
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Mickey Beard, lending manager for $839 million Rivermark Community CU, Beaverton, Ore.

We try to have relationships with our dealer reps and the dealers so we know what is going on. We also have our team trained to know what to look for as far as fraud. One red flag we keep an eye out for is a large jump in volume from a dealer. On every loan, we do calls to the borrower to verify income and other details.
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Mark Wilburn, senior vice president for $796 million Truity CU, Bartlesville, Okla.

We had a situation two years ago where an F&I [finance and insurance] guy had created a fake ADP pay stub on Excel. We average $15 million to $18 million in loans per month, and we noticed all of the pay statements from this one dealer looked the same. We eventually identified 30 to 40 fraudulent pay statements. In some cases, the borrower had income, but no proof, so the F&I guy just made up pay stubs. Now, when we pay a loan we examine every package and we spot check by making phone calls. We see some straw buyers from time to time – where someone has bad credit or some other reason, so he has a friend or relative buy the car. There are a few signs of fraud we can look for.
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Darrin DePriest, EVP/chief lending officer for $21 million Wheat State CU, Wichita, Kan.

We are a small credit union, so we use CUDL [from CU Direct] as a loan source. We only accept a small number of indirect members and loans. For the most part, people have to be members of our credit union already to get an auto loan. The dealers we work with we have an established relationship – but we still check identification and background of all prospective borrowers.
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Tim Dunham, loan operations manager for $766 million CU of America, Wichita, Kan.

We get an identification with every loan application, and we verify the Social Security number. We communicate with every dealer and we work only with dealers we know. We check fraud alerts on file. We also do a welcome call to make sure the borrower is a real person. If the first payment does not go through we would find it pretty quick. One occurrence might pass, but anything systemic at a dealership we would catch it.
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Alex Casillas, president of $33 million My Credit Union, Redwood City, Calif.

We actually caught a dealer committing fraud recently. Our loan officer did her own Kelley Blue Book evaluation of the vehicle and was getting a different description. That led to the discovery of five other fraudulent acts by the same dealer. For a small credit union such as ours, it is all about due diligence. We do our own verification of the collateral and the borrower. We check the borrower’s employment, address and all the seemingly small things.