Fair Isaac Corp., better known as FICO, is synonymous with credit scores, but the company does a lot more in the automotive space than calculate those numbers.
For example, predicting the likelihood that an individual auto loan applicant is a fraudster is a significant growth area for FICO, said Liz Lasher, FICO vice president, Fraud and Security Solutions.
"When we go to a dinner party and people ask me what I do, I tell them I work at FICO, and they always say, 'Like the credit score?' " she said. "My husband and I joke that the name of the company should be FICO-Like-the-Credit Score."
FICO predicts consumers' creditworthiness based on credit history. What's less well-known is that the San Jose, Calif., company is "very much an analytics and software company" and not a data provider as such, Lasher said.
Even in the case of FICO scores, FICO itself doesn't collect or own consumer credit history data. "It's a common fallacy about FICO, which is that we are a data provider. It's the credit bureaus that have the data," she said.
The three main credit bureaus are Equifax, Experian and TransUnion. "We're the analytic people," Lasher said. "We use that data so we can predict your intent to repay."
New business
Ken Kertz, FICO's senior director and practice leader of the auto and motorized division, said the company started branching out its auto practice just over five years ago. "We work with the auto lenders on three or four different fronts," he said.
The origination stage is where FICO is best-known, with credit scores helping with credit decisions. But FICO also can suggest alternative deal structures for a customer to help get a deal closed, Kertz said.
During the life of the loan, FICO also works with auto lenders to help with collections, account management, customer communication and other services, he said. Customer-facing services are another growth area, as online customers seek to take more control over the auto finance process, Kertz said.
FICO also is expanding its security business, especially weeding out fraudulent credit applications. Synthetic fraud, in which a thief constructs a legitimate-appearing credit history before applying for a loan, is the hot-button type of fraud today, Lasher said. A synthetic account could be based on a real person and real details, or it could be fictitious or a combination of both.
Ironically, synthetic fraud is on the rise in auto finance partly because of better security elsewhere. The phase-in of computer chip-equipped credit cards in the last few years has made it much harder to counterfeit credit cards, she said.
Chip cards didn't make auto loan fraud any easier in absolute terms, but compared with counterfeit credit cards, auto loan fraud became more accessible.
"Fraudsters are always — always — going to go for the lowest-hanging fruit. What's the easiest way to make a payday? The deployment of chips on credit cards took [an annual] $4 billion-payment fraud industry and forced them to find something else to do," Lasher said.
That "something else" is increasingly auto loans. That's not to say auto loan fraud is necessarily easy, or quick, she said.
It typically takes years to establish a phony credit history that appears legitimate.
"The average life span is five years — that's right, 60 months. First, it's a thin file; maybe it appears to be an immigrant or a younger person who didn't have credit. They build up a credit line, make the payments on time, and it starts to look like a prime credit score," Lasher said.
‘Catch it at the front door'
Without disclosing any details, Lasher said one way FICO hypothetically could detect a high likelihood of fraud would be if the same email address was used on multiple credit applications in a short period. "Oh, look, Liz used that email address six times in the past two days, and it's associated with four unique identities," she said.
Meanwhile, the same individual may have created hundreds of phony accounts. A typical scenario is that an auto loan is the very last loan the fraudster applies for in the life of a fake identity because it's the biggest payday, and because once the vehicle is delivered, the loan goes bad right away.
"For auto finance, it is application fraud, and you have to catch it at the front door," she said. "If you don't, your piece of collateral is shipped overseas."