60% of First Payment Defaults Could be Synthetic Fraud, Expert Says

FORT WORTH, Texas — Lenders and dealerships need to be aware of synthetic fraud in powersports, which could make up 60% of first payment defaults, Sandra Giron, collateral manager of the risk and strategy department at Yamaha Motor Finance Corp. USA, told attendees during a presentation at this month’s PowerSports Finance 2018.

With synthetic fraud, a cheat will fabricate an identity with a mix of fake and real information, such as using a social security number that hasn’t been used for a credit application, such as that of a child, with a false name and address. The fraudster then uses that identity on a credit application. Even though that application will be denied, it creates a record with that name and social. That record then can be used with a real name and social, often of an accomplice, to create a joint account. Once on the joint account, the fabricated identity can establish a credit history

“Now there’s a new credit profile with the fake social security number,” Giron said, noting that there are sites where the fraudster can pick up the information they need to create fake accounts.

What often happens is that the fraudster will use the card, pay off the debt and build up an ever-increasing credit line.

“Depending on the tradelines, that credit score can go from a zero to 730 within two months,” Giron added. “That’s how fast they can get their credit score up. Most of the lenders are not aware because everybody sees it as a thin-file, they don’t see it as synthetic fraud.” A thin-file is a term commonly used to refer to borrowers with low credit payment history, such as a millennial who has never applied for a loan before.

After fraudsters build up their credit score, they submit a new application to another bank, which will often approve it, Giron said. Then the fraudster will make major purchases, such as one or more motorcycles, and disappear, “So, the fraudster now builds up the credit profile by making one payment, sometimes two payments, and then they will stop paying. By that time, they already got your collateral, and you’re never going to find it because you’re just chasing a ghost.”

Dealers are the first defense when it comes to stopping fraud, and there are a few things they can do to spot it.

Giron suggests asking as many questions as possible. Many fraudsters may be looking to buy a powersport vehicle in a different state, so dealers should be asking why, for instance, a consumer whose address is in California is buying a unit in Georgia. Another red flag is if the consumer quickly agrees to the full price and doesn’t question anything about the deal.

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