Fraud in Automotive Dealerships: A Growing Threat
Dealerships face rising fraud risks, with customers using deceptive tactics to secure vehicles. Learn how advanced verification and staff training can protect against costly scams.
Fraud in the auto industry isn’t just about deceptive dealers—customers themselves are increasingly targeting dealerships with schemes that cost the industry billions each year.
The Scope of the Problem
Auto lending fraud is at an all-time high. In 2024, lenders and dealerships faced $9.2 billion in fraud-related exposure—up 16.5% from the previous year. A massive 69% of this risk came from first-party fraud, meaning the buyer intentionally misrepresented themselves or their financial situation to get a car they couldn’t (or wouldn’t) pay for.
Common Types of Customer Fraud
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Income Misrepresentation
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Customers inflate their income or create fake pay stubs to qualify for loans.
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This accounted for 27% of detected fraud attempts in 2024.
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Straw Purchases
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A buyer with good credit purchases a car for someone with bad credit, often to hide the true driver’s identity.
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This can lead to skipped payments and legal headaches for the dealer and lender.
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Synthetic Identity Fraud
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Criminals combine real and fake personal information to create entirely new identities.
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Since 2017, synthetic identity risk has increased fivefold in the auto sector.
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Vehicle “Bust-Outs”
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Fraudsters purchase a vehicle, make a few payments, then disappear—often selling the car illegally before defaulting.
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Fake or Altered IDs
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In 2024 alone, dealership fraud prevention tools flagged over 30,000 counterfeit driver’s licenses, blocking more than $1 billion in potential purchase fraud.
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Why Dealerships Are Targets
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High-value assets: Vehicles are expensive, making them attractive for fraudsters looking for a quick resale.
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Tight sales goals: In the rush to close deals, some sales teams may skip thorough verification steps.
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Financing complexity: Multiple parties (dealers, lenders, insurers) can create gaps in oversight.
The Cost of Customer Fraud
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In 2022, dealerships lost more than $619 million to identity-related fraud.
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79% of dealerships experiencing fraud lost at least one vehicle, and 60% lost three or more.
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Fraudulent deals not only hurt financially—they damage relationships with lenders and can increase future financing costs for legitimate buyers.
How Dealerships Can Protect Themselves
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Advanced ID Verification – Use AI-driven tools to detect counterfeit IDs and synthetic identities.
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Income Verification – Require third-party income validation instead of just pay stubs.
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Training Staff – Educate sales teams to spot red flags like rushed deals, incomplete references, or inconsistent personal information.
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Monitor for “Bust-Out” Patterns – Use data analytics to flag unusual payment behavior early.
Final Thoughts
Fraudulent customers may seem like a small percentage of the overall buyer base, but their actions have an outsized financial impact on dealerships. As scams get more sophisticated, the most successful dealerships will be those that invest in prevention technology, train their teams to recognize red flags, and build strong relationships with lenders to share intelligence quickly.