Overview:
In an open discussion with auto lenders and innovative leaders from across the country, Allied Solutions asked the question: “What’s your top concern going into 2025?” The overwhelming majority of the lenders had one word. Fraud. Fraud – specifically title washing fraud – has become more prevalent, sophisticated, and costly.
Key findings:
- Artificial intelligence is perpetuating title washing. AI image editing enables fraudsters to easily edit digital titles and create new, false, yet hyper-realistic documents. The good news? The double edged sword of AI is also preventing fraud.
- Paper titles are at risk too. It’s not just digital titles that are at risk for title washing. Counterfeiters remove keywords that are crucial to the vehicle’s history and value like “flood damage" or “total loss” from the title, oftentimes transferring the title to a state with higher leniency.
- Every state has a different approach for titles. States vary on strictness of title health. While some states do not require the title for vehicle auctioning, other states allow a vehicle to be sold with a lien. The lack of interstate title verification is an open door for fraud. Plus, not all vehicles are entered into the federal database. The ones that are not are at higher risk for fraudulent title activity.
- The harm goes beyond the purchase of a title washed vehicle. The victim of title washing is often both borrower and lender. When damage or an accident are essentially washed off a vehicle's history, buyers overpay for potentially unreliable vehicles. Because borrowers are paying too much for damaged vehicles, they (unknowingly) risk being upside down on their loan, and lenders are left either tracking down the correct information or absorbing additional risk in the recovery process.
- The financial implications for lenders are significant. Synthetic IDs, falsified pay stubs and/or paychecks inflate credit worthiness, and result in losses later down the line in the recovery process. Errors in the title and lienholder information often - if not always - lead to insurance errors or lack of adequate coverage for the collateral altogether. One act of fraud multiplied across dozens or hundreds of loans is damaging both financially and reputationally.
Steps to Safeguard Your Portfolio from Fraudulent Lending Activity
The number one fraud fighting tactic is automation. Bad actors know that archaic, non-automated processes equate to more open doors to take advantage of and commit fraud. Financial institutions that are slow or hesitant to automate lending and recovery processes will continue to become a target of title washing and synthetic ID fraud.
A large majority of leaders feel the rush of AI’s growth over the last few years and now feel a sense of urgency to incorporate AI into business functions, especially to combat fraud. For every fraudster using AI to commit fraud, every lender has the opportunity to leverage AI to detect and thwart fraud.
To protect your portfolio, leverage automated lien verification. Verify out-of-state titles through National Motor Vehicle Title Information System (NMVTIS). Process improvement from loan signing to signing collateral off the books is crucial to reduce title washing fraud.
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