What are the prospects and mitigations for financial fraud in the motor finance space in 2023? Chris Sinclair, chief compliance Officer at ALPHERA Financial Services, looks at the landscape
According to the Cifas 2022 Fraudscape report, there was an 11% increase in fraudulent conduct in the UK during the first six months of 2022 compared to the same period in 2021. The motor finance sector will need to be ever more vigilant because rising vehicle purchase prices are only fuelling increases in identity and asset fraud.
With UK interest rates at a 14-year high, consumers have seen a considerable increase in monthly repayments on financial agreements. As some start to struggle with the cost of living, we have seen a rise in the number of individuals falsifying their incomes and enhancing their earnings in order to secure approval on vehicle finance.
There has also been an increase in the number of online adverts encouraging people to sub-hire their vehicles as a way to make money. Some vulnerable customers are not aware that this activity could breach their finance contract, invalidate any insurance and could be deemed as fraud.
Another scenario where customers could be oblivious to the illegality is selling a financed vehicle before the end of the finance term. If there is an outstanding balance, and the customer uses Contract Hire or Hire Purchase products, the car is not or not yet the customer’s to sell.
There is a duty of care from both car retailers and lenders to educate motorists on what they can do, should they come into financial difficulty while financing a car. Most importantly, the customer should always speak to their vehicle finance provider for help and guidance before taking action into their own hands.
Unfortunately, as consumers become increasingly exposed to cost-of-living challenges, fraudsters will be keen to take advantage. There has been a rise in the number of ‘ghost’ insurance brokers and car dealers operating online as well as the number of cloned vehicles. There are many documented cases of ghost insurance brokers who claim to be able to get the customer a better price on their car insurance.
The customer pays the ghost insurance broker to purchase the insurance, but a policy is never started leaving the customer uninsured. This is a ‘strict liability offence’ and as the customer has committed the offence, they incur the penalty points and/or fines even though they believe they are insured.
Some motorists have also fallen victim to ‘ghost cars’ which in essence are cloned vehicles. If the car is identified by the police to be cloned, it is taken from the driver and the driver is left both without a car or any viable claim for compensation.
As fraudsters become more sophisticated with online scams such as this, the motor finance sector is under increased pressure to conduct detailed and robust vehicle and identity checks that are consistently upgraded as fraudsters’ tactics change.
It is important for car dealers to encourage consumers to conduct their own background research before making any purchases. If it looks too good to be true, then it probably is! Some quick and simple tips such as conducting detailed research into the dealership or person selling the car, checking how long the website has been live for, and visiting the car dealership or to see the car in person before purchasing can save consumers a considerable amount of money, time and hassle in the long run. Customers can also check the VIN stamped onto the car compared to the V5.
Motor finance providers can use the new Consumer Duty to demonstrate how they plan to protect customers from scams.
At ALPHERA, we are working with key industry bodies and our dealer and broker Partners to provide best practice advice on how the Duty will be implemented across all business operations. We are looking at how we can support our Partners in handling vulnerable customers and what to look out for in potential fraud cases. We know that customers have a higher respect for dealers and brokers that look out for them, especially during the challenging times that many are facing with current economic conditions.
Our main advice for car dealers is to encourage their customers to remain vigilant and conduct as many checks as possible, make sure they are not in breach of their finance agreements by explaining what they can and cannot do, and to contact their finance provider should they need any support throughout their finance agreement