Record high of $3.2B in fraud hits lending market: TransUnion

By Adam Zaki for CFO.com

Cybersecurity, an area pivotal for companies implementing new technologies, has its challenges. As technology develops, bad actors’ tactics do as well, and the lag between tactics and proper defense development can leave many companies vulnerable despite efforts to ensure their organization’s data is secure. In the world of rapidly growing AI technology, where experts have said we are less than three years from an unrecognizable digital landscape, exposure to fraud and data leaks will likely also increase.

In TransUnion’s most recent report, the H2 2024 Update on the State of Omnichannel Fraud, their data shows this process has already begun. A sharp rise in synthetic identities, many of which have become easy to create with the help of generative AI, is emerging in the lending market, particularly in consumer and business credit cards and U.S. auto loans. As a result, $3.2 billion of loans in the U.S. are being held by fake or synthetic identities — an all-time high and a 7% increase since the end of H1.

U.S. auto loans, many of which drastically exceed the current value of the car they were written to purchase, have dealt with synthetic fraud challenges at a rapidly increasing rate. Lender exposure to synthetic identities in auto loans was nearly twice as high as in the bankcard sector, which held the second-largest balance among the credit types analyzed.

In total, synthetic fraud in U.S. auto loans is up 105% in five years and makes up $2B of the $3.2B of total fraud. They’re also on pace to make up nearly three-quarters of all lending fraud in the U.S. by the end of H1 2025.

Surveyors called the auto loan market appealing for fraudsters, likely due to the sales incentive by dealers to roll out financing deals, combined with in-person fraud vulnerabilities. While proof of income and identity fraud have long plagued the car dealership model, the ability to create items like fraudulent pay stubs is much more accessible via generative AI.

Results from the survey, encompassing fraud globally, show that no industry is safe from fraud, regardless of attack frequency comparisons. This time, global logistics was the hardest hit by fraud, particularly shipping fraud, with a 120.7% increase in occurrences between H1 2023 and H1 2024.

The only industry that saw anything close to that rise was communities like online dating and networking groups, with a 22% increase in the same timeframe in the form of profile misrepresentation, the most common type of fraud seen throughout the survey. Communications groups also saw the highest suspected fraud attempt rate at 11.5%. Industries that saw sharp declines in fraud were telecommunications, down 89.2%, and retail down 61.1%.

Creating an online account for a business that provides access to company data and cash is the riskiest activity, according to surveyors, and is currently the process for at least 25% of all accounts opened by organizations. A third of participants (33%) said between 26% to 50% of new account openings of all types are done in this manner. Globally, surveyors estimate that 6.5% of all accounts created, as well as 3% of all financial transactions in H1 2024, were fraudulent.

Leadership awareness in these matters is critical. Knowing not just the cybersecurity capabilities of the company, but also understanding the cybersecurity capabilities of organizations the company is doing business with or borrowing from, especially when integrating new elements of the finance function, is essential. As AI continues to improve and become integrated into every facet of the tech stack, the ability for bad actors to exploit tech-focused companies with unprepared leadership will continue as well.