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Fighting back against fraud activities in motor finance PDF Print E-mail
Monday, 18 January 2016

Through interviews and views expressed by major industry players at Leaseurope's Conference on Fighting Fraud in the Leasing Industry in Brussels in November 2015, Motor Finance - a UK car finance magazine and a Timetric briefing service - has identified the major fraud threats in the industry and the means of overcoming them.


According to UK fraud prevention organisation Cifas, the total number of recorded frauds in the UK has climbed steadily in the past five years, from 217,000 in 2010 to 277,000 in 2014. Despite a low number of fraud cases in the motor finance industry compared to other finance industries, companies are advised to remain vigilant about fraud activities. However, fraud can be costly for motor finance companies and in order to protect themselves they need to invest in prevention and find solutions to combat potential threat.

Fraudsters and types of fraud
Fraudsters can be individuals or organised crime groups, with the latter playing an important role in the development of fraud. According to Experian, the UK population is divided into 16 categories, with the three key perpetrators of fraud belonging to the 'urban cohesion', 'municipal challenge' and 'aspiring homemakers' categories.

Roger Potgieter, asset and consumer finance partner at law firm Shoosmiths, explains that individuals resort to fraud due to their greed and opportunism. "The idea that it's a victimless crime makes people carry on. They think it's an easy way to make money and that nobody really suffers. Opportunism is another driver - people with no bad intent may find themselves presented with the opportunity [to commit fraud], they take the chance and get away with it. Once they have done it they may try it again, and before you know it they are into a cycle of fraud," he says.

More than four in five (85%) of fraud cases recorded by Experian involve application fraud, where the genuine individual applying for motor finance manipulates his or her application in order to secure the finance. In addition, Experian finds that around 25% of the application fraud cases involve fronting, which occurs when individuals take out finance when they are not the driver or ultimate owner of the car. Meanwhile, Cifas finds that identity fraud, where a fraudster has stolen the identity/details of a genuine person, consistently contributes between 40-50% of all recorded frauds over the past five years. However, it accounts only for a very small share of the total motor finance fraud cases every year.

The threat of clocking relative to PCP agreements is another major concern expressed by industry practitioners. According to CAP HPI, clocking is on an upward curve and head of industrial relations at CAP HPI Barry Shorto fears that it might be legitimised through the government's MOT database.

On the other hand, Frederik Linthout, managing director at UniCredit Leasing Germany, cross-border fraud is set to increase across Europe in the near future. "I'm sure cross-border fraud is the next trend, yet we are still at an early stage. And we can take counter-measures so as not to be too surprised by the losses we suffer. But we have to start fighting against it now and not in five years' time," he says.

Means of combating fraud
According to the industry experts such as Eric Berthelemy, corporate secretary and compliance officer at Société Générale Equipment Finance, information sharing across companies is one of the many ways to help tackle the problem.

Potgieter shares the same view: "Unless we are talking about this, sharing information and statistics, we haven't really got a hope in defeating this." He also highlights the significance of trade associations getting involved giving as an example the FLA, which organises quarterly motor finance fraud groups, where experts from each member company share experiences and best practice.

On the other hand, Dally points out that not all countries have the same issues, legal structures and threats. Dally says that the low incidence of fraud in the UK motor finance industry compared to other EU countries is due to its good anti-fraud infrastructure. "For many years in the UK finance companies have registered the asset - the car on HP or PCP - with one of the three asset registration agencies which are CAP HPI, Experian and CDL. That's a very strong control in the sector that makes it much harder to commit conversion fraud, because the asset is registered publicly as belonging to that motor finance company. Prevention is better than cure and that's part of the infrastructure which is very strong in the UK," he explains.

Potgieter also emphasises another important weapon in the fight against motor finance fraud - the cooperation between police and the trade associations. "There are 21 FLA members who contribute yearly to a specific division of NAVCIS, which now concentrates on automotive financial crime. Since 2007, NAVCIS has recovered 3,500 vehicles for those members for a value of £38m pounds," he says.
 

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