Consumer Fraud On the Rise, Lenders Advise Best Practices

fraud money caught in trapFraudulent activity — identity theft — is on the “upswing” in powersports, with fraud rings becoming more prevalent in the past few months, said Tom Collins, executive vice president and managing director at FreedomRoad Financial.

Either more accounts are fraudulent, or FreedomRoad is catching it more often on the frontend, he said, “but it seems that the fraudsters are certainly becoming more creative in getting this criminal activity completed.”

The best safeguard against this fraudulent activity is two-fold: conversing with lender competitors and ramping up dealer training and support.

“If we see a high level of identity theft, I will call some of the other lenders, and say ‘Hey are you seeing any issues in Florida?’” Donal Hummer Jr., chief executive and founder of ThunderRoad Financial, told Powersports Finance. “That’s one of your best safeguards: talking with other powersports lenders.”

Fraudulent activity typically happens in cycles, Collins added, and lenders need to be diligent with their dealer partners. “Dealers are our best line, and first line, of defense against these criminal enterprises,” he said.

Dealers are the ones that need to protect everybody, Collins said. “That’s why it’s crucial for a dealership to do due diligence. If they see any red flags or things that don’t add up, they need to take that further step and investigate,” he added. “If they investigate, they could prevent a fraudulent deal from happening. They need to make sure they work the deal just like we would, and verify what the customer is telling them.”

In an effort to ensure dealers are doing their due diligence, it’s up to the lender to ramp up training efforts and work with the dealers to resolve any issues, said Emre Ucer, managing partner at MotoLease.

The good news is, there is not a lot of dealer fraud occurring in the industry, meaning when a dealer produces fraudulent stipulations to close a deal, several lenders agreed.

“We see very little of that,” Collins said. “If we had a dealership doing something like that, we would cease the relationship. If there is a rogue dealer employee who is trying to get customers approved, and it’s not a customer committing criminal activity, we would be done with that dealership. Has it happened? Sure, but we don’t see that often.”

Dealers generally have a “healthy relationship with their captive lender as they benefit from the captive’s unique financing programs,” Vijay Patil, chief risk and strategy officer for Yamaha Motor Finance Corp. USA, told Powersports Finance. “Given my own unique perspective as a captive, I don’t think that dealer fraud is a concern for us.”

However, dealer fraud hasn’t been much of an issue for independent finance institutions either, like ThunderRoad, FreedomRoad, MotoLease, or CycleOne Financial.

“Actually it [dealer fraud] has not been a problem,” ThunderRoad’s Hummer said. “It doesn’t mean we aren’t going to get hit, or that we haven’t had some dealers that we have had issues with, but overall it’s been pretty minor.”

Consumer fraud, on the other hand, is on the rise compared to a year ago, Patil added.

There will be red flags and signs that everything is not right, Collins said. “That’s when the dealership needs to stop. We are all in this together, and they need to protect their lenders. They need to take a step back and say it’s not worth it. It will hurt their profitability in the long run, because we [lenders] won’t trust them.”

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