Straw Borrower Fraud Outwitted by FraudBot

Straw Borrower Fraud – What Is It?

A straw borrower is an individual whose name, social security number, and credit history are used to hide the identity of the organizers of an auto fraud loan scheme. The straw borrower can be a real person but is not the true buyer.

Straw borrower fraud can be difficult for individual lenders to identify. Here’s why: dealerships could send applications with differing borrower information to multiple lenders. Without seeing all of the different applications at once, lenders don’t get a complete picture of who is buying the vehicle and often see no reason to suspect false information.

Straw Borrower Red Flags

Straw borrower fraud often contains fabricated income and employment information and inflated collateral (which is how the fraud organizer makes a profit after paying the participants). These may be difficult to detect but two key red flags to watch out for are:

  • The purchase doesn’t make sense – Is the borrower a 70-year-old woman looking to buy some good ole American muscle?
  • Co-borrower removal – Straw borrowers will often include the real buyer on the original loan as a co-borrower. If the co-borrower is denied, they may attempt to reapply with the co-borrower removed. This is an indicator that the applicant is most likely not the true buyer.

How Does Point Predictive’s FraudBot Work?

Knowing how straw borrowers operate is just the first step to solving the problem. But detecting them upfront is almost impossible for a lender seeing only one application. At face value, they can seem unsuspicious. As such, their frauds are complex and move quickly, so applications are extremely time-sensitive. They require a lot of data and computing power to find. So what’s the solution? Enter: FraudBot.

Point Predictive developed the Straw Borrower FraudBot to address these challenges.

In one instance, FraudBot alerted the Point Predictive Fraud Analysts to an application that would have otherwise been overlooked. The borrower had a good history and appeared to have a strong income. However, FraudBot saw a similar application from the same borrower that same day, but with a different lender. The Fraud Analysts reviewed both applications and noticed that the second application had the same VIN, an added co-borrower, and a much higher stated income. This discovery resulted in true fraud savings for the customer.

Benefits of the Straw Borrower FraudBot

The Point Predictive Straw Borrower FraudBot allows lenders to identify more fraud with fewer false positives. Too many false positives put a strain on operational resources. This often leads to lenders attempting to reduce the number of alerts requiring review. Many times, however, a similar reduction in the amount of fraud identified occurs.

But FraudBot has shown it can effectively decrease false positives, while simultaneously reducing fraud losses.

These are the results seen so far from the Point Predictive Fraud Analysts:

  • Total reviews conducted decreased month over month by 20%.
  • Alerts issued to Point Predictive customers increased by 21%. It’s not that there is suddenly more fraud occurring; FraudBot just does a better job at finding it.
  • False positive rates fell from 2.2 to 1.4 and overall fraud captured increased by 6%, further reducing losses.

The challenges of capturing straw borrower fraud are a perfect example of the need for Point Predictive’s Artificial and Natural Intelligence [AI+NI]TM approach to improving fraud detection.

Justin Davis is a Fraud Consultant at Point Predictive