Consumer credit: car loans are top frauds in UK

According to Experian, which released its latest "fraud index" yesterday, fraudulent car loans in the first half of this year were up 33% on the last half of 2009.

Additionally - and perhaps of special interest to industry groups in the USA which argued against the inclusion of car dealers in the new financial sector regulatory regime - Experian says " the complexity of the sales process is also a factor. For fraudsters, this makes it a comparatively easier target than other finance providers."

Translation: alert to mortgage fraud after the sub-prime crisis, lenders are less attuned to risk in an area where margins are higher and assets are easier to repossess.

Car loans are also easier to process and complete more quickly, so enabling banks to demonstrate a commitment to lending where governments are pressing them to shove money out of the door.

Experian (an English company which likes to present itself as primarily American - an irony given its work in due diligence and customer identity) says "Automotive finance providers saw the greatest rise in fraud in the second quarter of 2010 with 47 fraudulent applications per 10,000 (compared with 25 in Q2 2009) - this is the highest level recorded in the last three years. More than half (64 per cent) of attempted automotive fraud involved individuals attempting to conceal adverse credit histories in their applications, while almost one in five involved inaccurate employment information."

But there is some (limited) good news: the company says "The insurance fraud rate fell during the first half of 2010, having hit an all time high of 16 fraudulent applications per 10,000 in Q4 2009. The figure has halved since then, now standing at eight applications in every 10,000. This is, however, higher than then seven in every 10,000 applications recorded in Q2 2009."

And credit card fraud has also decreased: "Following a boom in attempted card fraud in Q1 2010, the number of fraudulent applications dropped to 18 in every 10,000 applications during Q2. This was substantially lower than the 25 in every 10,000 applications recorded during Q2 2009. Credit cards continue to be the financial product most commonly targeted by third party fraudsters, with identity theft used in almost 90 per cent of fraudulent applications in the first half of the year."

But the banking sector cannot be complacent - in a section that should trouble MLROs as much as it troubles risk managers, Experian says "Attempted current account fraud is one of the fastest growing areas within the UK’s financial services sector. In the past 12 months, fraudulent applications have shot up from 17 per 10,000 to 27 per 10,000. Identity [fraud] accounted for around one-in-three attempts to open fraudulent current accounts in the first half of 2010, while false documents were spotted in 13 per cent of fraud attempts spotted in Q2."

And there is no point in imaging that the surge in car loan fraud to rate above mortgage fraud means that the latter is falling in popularity: it isn't. Experian says "The percentage of mortgage fraud also continues to steadily increase, despite dipping slightly in Q3 and Q4 2009. Figures now stand at 35 out of every 10,000 applications received were identified as fraudulent, more than double the 16 in every 10,000 during Q2 2007, when the economy was more buoyant. There were 37 per cent more attempted mortgage frauds in the first half of [2010] than in the second half of 2009, with the majority of cases involving applicants misrepresenting their situations or attempting to hide adverse credit histories in their applications.