To combat fraud, it ‘still is a sight thing'

When showrooms throughout the U.S. were forced to close amid the coronavirus pandemic this spring, many dealers shifted to digital sales out of necessity.

Lyon-Waugh Auto Group, which had been set up with Darwin Automotive's digital retailing tool at one dealership, decided to roll it out to all eight of its luxury-brand stores in Massachusetts and New Hampshire. Now, with more deals being done away from the F&I office, it begs the question whether the digital sales process could be more susceptible to fraud.

In a remote sales setting, "you do have to be a little more stringent," said Trisha Winski, Lyon-Waugh's corporate director of finance.

But the general process Winski has successfully used to fight fraud for years has not changed. It comes down to having a consistent way to verify customers, regardless of how well the dealer knows those customers or their circumstances.

"It does kind of tend to circle back to your process," she said. "If you're doing the same process all the time, there's little things that even if you're doing it virtually, or digitally, that aren't going to get past you, because you're still doing the same process."

Winski said a key part of that process is asking customers about information on their credit report that only they know the answers to, often called out-of-wallet questions.

These kinds of procedures also are found in digital retailing platforms, which have received sharp interest from dealers keen on being able to sell cars and trucks remotely in a post-COVID-19 environment.

Well before the pandemic struck, Dealertrack included a number of fraud mitigation tools available to its F&I desking process, such as red-flag and out-of-wallet questions, and the U.S. Department of Treasury's Office of Foreign Assets Control report, known as an OFAC, which can flag potential lenders to a borrower's inclusion on a government sanctions list, said Andy Mayers, lender solutions strategist at the company.

Seeing heightened demand, Dealertrack accelerated in March the launch of its assisted remote-signing tool to allow for socially distant transactions. Dealertrack said e-contracting grew 94 percent between mid-April and mid-July, while the number of contracts signed remotely jumped 97 percent.

To combat fraud, Mayers said the company has been giving dealers a list of best practices for digital retailing, such as using secure, encrypted Internet connections, running OFAC and red-flag alerts and automating out-of-wallet questions.

Even with the extra guidance, "the dealer is always still responsible for verifying the identity of their customer," Mayers said.

As more retailers have been gravitating toward digital retail, fraudsters, too, have shifted their nefarious practices online, said Bryan Lewis, CEO of Intellicheck, a company specializing in verifying the authenticity of driver's licenses and other forms of identification.

In the second quarter, attempted fraud rates at Intellicheck's 79 auto-retail customers in the U.S. rose 20 percent over the first quarter of the year. So far in the third quarter, the rate has grown by another 6 percent over the second quarter.

"What we've seen certainly since COVID, across all of our clients, across all the industries, is I think the bad guys realized, 'Dang, I can't go into the store and perpetuate fraud, I need to figure out a new way,' " Lewis said.

Darwin includes several of the tools needed for checking a person's identity and history, such as red-flag and OFAC checks, but company CEO Phil Battista said the verification process at signing is still a critical part of mitigating fraud.

"The true identity check, unfortunately, still is a sight thing where you're delivering a car and you're matching up a driver's license to the person who's in front of you that the picture matches as such, after you do the rest of the electronic verification," he said.

Battista said Darwin has not seen more incidents of fraud amid the coronavirus pandemic. In fact, the company has not necessarily seen a significant rise in customers completing sales completely digitally, either.

"The number of people completing transactions has moved up a little bit, but it's not like it's went from 8 percent to suddenly 40 percent of all the customers are doing a complete transaction," he said. "And that may be tied to why you're not seeing a larger increase in the amount of fraudulent transactions."

In any case, for dealers, it goes back to the final line of defense — making sure the customer is who they say they are. And for Winski of Lyon-Waugh Auto Group, combating fraud in a physical or digital world will always mean having a consistent process in place.

"You have to be extra diligent because usually people who are trying to defraud you are really not going to come in with bells and whistles that say they're a fraudulent person," Winski said. "You have to really pay attention."