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FINANCE

Credit App Fraud Not a Victimless Crime

Falsifying any of the five key credit determinants on a credit application generates a long list of

potential victims inside and outside the dealership.

BY GIL VAN OVER, EXECUTIVE DIRECTOR OF AUTOMOTIVE COMPLIANCE EDUCATION (ACE)

Some dealership managers falsely believe report will name the dealership as poten- • Require that both the source cred-
manipulating a credit application to im- tially committing bank fraud. it app and the submitted credit app be
prove the likelihood of obtaining a credit retained. Retention of both will permit
approval is a victimless crime. The reality Now let’s look at the five key detriments: for auditing of the process and provide a
is there are a handful of potential victims potential defense against claims that the
from a manager’s decision to kink a credit 1. Income: A dealer is obligated to accu- dealer provided false information to the
app, including the manager’s family when rately present the customer’s income to finance source.
he or she is jailed for the crime. the finance source, because it serves as the • If the F&I manager uncovers additional
denominator in payment-to-income and or incorrect income during the custom-
I know of no finance source that will con- total debt ratios. These ratios feed into the er interview, correct the source app with
sent to credit app fraud. And any finance finance source’s algorithms for both credit a single line through the incorrect info,
source employees who looked the other decisioning and pricing. write the corrected info, and obtain the
way or did not detect the fraud will likely customer’s initials by the change.
pay the price, either through lowered per- 2. Housing expense: A dealer manager re- • Do not combine two or more incomes
formance ratings or other disciplinary ac- cently told me that one of the credit app as one.
tions. Their families will most likely suffer, aggregation companies hosted a seminar • When a customer claims to only pay a
too. and told dealers that splitting the rent or portion of the housing expense, submit
house payment will enhance the likeli- what the customer is obligated to pay
Now, if the dealership suffers a public re- hood of obtaining an automated credit ap- either through a mortgage or a rental
lations nightmare because of the fraud proval. That action is taken to circumvent agreement. Then put a note in the credit
and loses sales as a result, you can add the the finance source’s underwriting guide- app aggregation system.
dealership’s employees and their families lines, which is one of the basic definitions • Retain all documentation used to change
to that list of victims. And if falsifying a of bank fraud. any of the key credit determinants.
credit app results in a deal the customer • Include the comparison of the five key
can’t afford, the resulting repossession, 3 and 4. Time: Time on the job and at credit determinants on the F&I and
deficiency balance and lower credit score residence are monitored because of the accounting checklist on every deal. In-
makes the buyer a victim, too. And don’t stability factors that play into the credit struct the compliance clerk to bring dis-
forget the credit losses the finance source decisioning process. That’s why many fi- crepancies to a manager’s attention.
will suffer because of the fraud. nance sources require previous address or • Include the comparison as part of the
employment if the consumer has less than manager’s weekly or monthly deal file
See, finance sources focus on five key de- two years at either. Increasing time on the compliance review. Also review the
terminants on the credit application: in- job or time at residence to avoid this dis- credit applications in the aggregator
come, housing expense, time on the job, closure is another way to circumvent the software to confirm the printed submit-
time at residence, and job type. Differ- finance source’s underwriting guidelines. ted apps are consistent with all versions
ences in any of these five key credit deter- stored in the software.
minants between the source information 5. Job type: Giving buyers a promotion
provided by the consumer and the infor- or listing a self-employed small business Credit app fraud is not a victimless crime.
mation submitted to the finance source owner as the general manager of the busi- Those who believe otherwise should do all
can be considered a violation of your fi- ness to avoid a stip from the finance source of us a favor and find another industry to
nance source agreement. can be viewed as credit app fraud. work in. n

The remedy available to the finance source To promote credit app compliance, you Gil Van Over is the executive director of Au-
is to require recourse or a buyback on the must establish and monitor a policy on ac- tomotive Compliance Education (ACE) and
transaction. Federally insured institutions cepting and submitting credit apps. Here the founder and president of gvo3 & Associ-
are required to file a “suspicious activity are the crucial steps: ates. Email him at gvo@bobit.com.
report” with their regulating agency. Said

28 | GIADA Independent Auto Dealer JUNE 2017