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Clarkston car dealer Katie Bowman Coleman and her staff were confident the out-of-state customer buying a car from the showroom floor was legit. But after sending the purchasing paperwork and the car to that customer in Ohio and never seeing the title get registered, reality struck: "We weren’t going to get paid," Bowman Coleman, owner of Bowman Chevrolet, said.
The customer's identity was fake and that criminal was long gone with the car. The dealership's fraud insurance covered most of the cost of the stolen car, but Bowman Coleman was out the deductible and lawyer fees: a total of $8,000. Plus, there was the time and effort trying to track down the fraudster. This happened 10 years ago, but for Bowman Coleman it might as well have been yesterday.
“Listen, nobody wants to lose that kind of money and be out car and then your insurance rates go up," Bowman Coleman said. "Now we’re very careful. We have good processes in place and we have not had any more issues like this. Still, it’s hard to tell who’s legit and who’s not sometimes.”
Customer identity fraud is a growing problem for car dealerships across the nation, according to a report by Point Predictive, a San Diego-based firm that specializes in fraud prevention. The report found that in 2023, losses due to fraud cost the auto industry more than $7.9 billion. The report also found that criminals are shifting fraud tactics: There was a 98% growth in fake-identity fraud in 2023. It's a crime that just about everyone — except the perpetrator — pays for.
"All fraud typically gets passed on to the end consumer because it's part of an expense line for a company," Frank McKenna, chief fraud strategist at Point Predictive, told the Detroit Free Press. "If they lose $150,000 a year in fraud, they have to recoup those costs somehow, and eventually it gets borne by the consumer."
But the biggest cost of fraud to legitimate customers, McKenna said, is the headache it causes for them when they make a purchase.
"They have shown their pay stubs, downloaded their bank statement, shown copies of your rental agreement ... and the reason dealers have to ask for all of that is because so many people lie. They have to double-check everything," McKenna said. "So, ultimately, everyone pays for it with the inconvenience."
Detroit ranks in nation's top 10 for fraud
Then there is the person whose identity is stolen. Their credit is severely damaged, said Peter Horadan, CEO of Vouched, an online identity verification company, based in Seattle.
"It also means the dealership is out the car and out the money they could have gotten for the car," Horadan said. "It becomes a big problem for them, because when you think about the narrow profit margin on the car, losing an entire car, you often have to sell 20, 30 or 40 more cars to make up the profit of that one car."
According to the Point Predictive report, in 2023 Detroit had the eighth-largest growth in "synthetic" identity fraud in the nation, increasing by 57%. Memphis, Tennessee, was No. 1 in growth at 127%. As a state, Michigan ranked right in the middle of the nation for fraud at No. 24, McKenna said.
Synthetic identity theft is when a real person's Social Security number is stolen and then a name, date of birth, mailing address, email account and phone number are made up and attached to that real Social Security number to create a new identity, according to Equifax. Because it mixes legitimate information with made-up data, it can be difficult to detect using traditional fraud monitoring methods because the criminal can tell a more believable tale.
So let’s say some part of a stolen identity is troublesome to the criminal who plans to take the fake identity to a car dealership to fraudulently buy a car. For example, the stolen person's identity shows they are 50 years old and the thief is 20. The thief might use a different birthdate with the victim's real Social Security number to pass a cursory identity check.
“You take some of the real information from the person whose identity you're stealing and then some fake information to better meet your needs, so you have a more convincing story,” Horadan said, and that’s synthetic identity theft.
According to TransUnion reports, auto lenders are the most targeted industry for synthetic identity fraud — which can happen in person or remotely. Point Predictive said it tracks the level of synthetic identity attempts on over 3 million applications each month. It said the data showed that synthetic identity fraud is happening "at unprecedented levels at auto lenders." The report showed that by the fourth quarter of 2023, the average synthetic identity attempt rate increased to 1 of every 120 applications for an auto loan.
'A box of socks' with a fake ID
Horadan said it's very easy for criminals to create synthetic identities by simply going on the web to steal another person's personal information.
"What we’re seeing is a new breed of identity fraud which combines incredibly good fake IDs and synthetic fraud," Horadan said. "What happens is the person walks into a dealership to buy a car and shows an ID that is fraudulent and either gets a loan or uses a credit card, and then later it’s found out that it’s a fake ID. The loan is determined to be fraudulent and the dealership is then on the hook for it."
Horadan said a website based in the Philippines enables a person, for $130, to upload their photo and whatever fake information they want about themselves. We are not naming that website. In about two weeks, Horadan said, "you get a box of socks in the mail and inside of it, in one of the socks, will be the perfectly fake ID, including the ultraviolet light detection code. They pass under a black light and the bar code scans the data and it matches. ... All of it is pretty accurately replicated.”
Metro Detroit dealers on guard
At Matick Automotive Group in metro Detroit, Partner Paul Zimmermann said his stores have declined to do business with customers who can't verify their identification. When they do catch fraud in action, they will press for prosecution.
The group owns Matick Chevrolet in Redford Township, Matick Buick-GMC in Southfield and Matick Toyota in Macomb. They have identified at least two cases a year of attempted fraud across the stores for the past 20 years and about half of those have been prosecuted — so about 10 or so cases — and they win because "it’s pretty black and white," Zimmermann said.
"You’re not who you say you are, and the employer who you said you worked for said you never worked there. So this is a made-up pay stub," Zimmermann said.
Still, the fact that the problem persists and criminals are constantly shifting their fraud tactics is troubling, he said. Zimmermann, like most dealers, carries fraud insurance, the cost of which has increased in correlation to a rise in fraud, he said. He estimates it has gone up by 20% in price over the past five years.
"(Fraud) is a burden to us and indirectly everything goes up, so we all pay for it," Zimmermann said.
Still, he has many safeguards in place. The dealerships take only original documents, no photocopies. If a document is available only online, they request the customer print it in front of a sales manager. Same with proof of residency. The dealerships ask for an original utility bill because the bar code on it will confirm the person's address if it's legit.
The Matick staff also checks driver's licenses under a black light for the state of Michigan markings. They send over financing materials to banks ahead of any transaction because the banks often have robust systems to detect fraud, Zimmermann said.
Also, the staff is trained to look for telltale signs such as the customer making a mistake when answering their birthday, or misspelling their name.
"You can’t just be assumptive and blind to the ability to answer a question," Zimmermann said. "If they can’t answer it, that’s a red flag and then it’s turned over to a manager who questions it more from there.”
At Village Ford in Dearborn, owner Jim Seavitt said his store has not had an experience with fraud yet. They have several systems in place to watch for it and, "We don’t do much out-of-state, but when we do, we really examine it closely because that’s where the most fraud would happen.”
Mike Porter, executive manager of Gordon Chevrolet in Garden City, said his shop has declined to do business with out-of-state customers who couldn't pass a five-question test administered through a software program the dealership purchased.
"We’ll do FaceTime to see who they are, and we have some out-of-pocket questions that verify their identity and they would either pass or fail the identity quiz," Porter said. "The questions are things like, 'Which one of these addresses have you been associated with?' Then it’ll name four different addresses for them to choose."
The person must answer all five questions correctly to proceed with the car purchase. For those who come to the store in person, Porter said, "We’ve had some training through Allied Financial on synthetic IDs and how to detect them."
The cost to 'try to be safe'
Bowman Coleman said after that experience a decade ago, her business started pulling every customers's credit to run a check on it for legitimacy and asks specific questions like Porter does. The credit check costs $10 per customer.
Only about 2% of her sales are out-of-state these days, but when they are, they use a service called DMV Nationwide.
"We send the paperwork to them, and then they know the rules of every state and what the taxes will be and so they handle all the secretary of state title work, so we don’t rely on the customer to do it," Bowman Coleman said. "Because they are working with the state, they can detect if the person is a fraud."
It costs $265 per deal to use DMV Nationwide, which Bowman Chevrolet passes on to that out-of-state customer. The dealership also spends $499 a month on training, which includes how to detect identity fraud. And it pays $2,662 a year for fraud insurance. So far, the dealership has not been victimized since that one incident, although it has declined to do business with a couple of customers for used cars after spotting red flags.
Still, Bowman Coleman knows that none of the processes she has put in place is completely "foolproof" as criminals continue to get more sophisticated.
"There’s no magic wand out there," she said. "We’re doing what we can to try to be safe.”
Jamie L. LaReau is the senior autos writer who covers Ford Motor Co. for the Detroit Free Press. Contact Jamie at jlareau@freepress.com. Follow her on Twitter @jlareauan. To sign up for our autos newsletter. Become a subscriber.
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