EXPERT PANEL JUNE 1, 2018 Founded in 1996, Dallas-based DIMONT is a - - PowerPoint PPT Presentation

PREVENTING PORTFOLIO FRAUD

EXPERT PANEL

JUNE 1, 2018

Founded in 1996, Dallas-based DIMONT is a leading provider of insurance claims and collateral loss mitigation services to the residential mortgage and auto lending industries nationwide. Since 2010, DIMONT has recovered over $2 billion in insurance claims proceeds for its clients. DIMONT’s solutions provide value to the automotive lending community by dramatically reducing default-related losses. Our solutions include:

• Auto claims processing
• Insurance monitoring
• Product cancellation
• GAP claim processing and filing

Our data-driven insurance monitoring solution utilizes technology to consolidate insurance information on the collateral within the lender portfolio, confirming collateral protection in the event of a repossession claim. Daily automated feeds provide the lender all relevant insurance changes, enabling proactive communication with borrowers on insurance status.

• Leading provider of GPS Solutions and Installation services.
• In business for more than 25 years.
• Products help connect and protect mobile assets
• Industries: automotive, powersports, and fleet.
• Serving dealers, finance companies, fleet transportation providers and

consumers.

• High-quality, reliable products, and Installations
• Compliance awareness
• Unmatched customer support.

• Established In 1986.
• 100% Focused On Vehicle History Data.
• CARFAX Is A Trusted And Recognizable Name Brand.
• More Than 20 Billion Vehicle History Records From Over 100,000 Sources In The U.S. &

Canada.

• Loads 5 Million New Records, Daily.
• Used Daily By Thousands Of Auto Lenders, Credit Union and Insurance Companies.
• Covers areas of fraud such as Title Washing, VIN Cloning, Odometer Rollback and

Collateral Location.

First technology company to provide complete transparency of a pre-

• wned vehicle identified by the 17-digit VIN.

A technology platform to identify the correct equipment configuration and value of a pre-owned automobile. Provides a solution of recovery for auto finance companies for charged-off vehicles by utilizing data analytics, OEM build data, industry expertise, a leading edge learning technology and a service oriented team.

DIMONT’s estimate of fraud’s size

$6 billion in auto fraud in 2017 and growing due to – An increase in overall lending volumes and auto sales over the last year – An increase in lending volumes to higher risk, non-prime borrowers – An increase in fraud misrepresentations linked to early payment default as some dealers try to push bad loans to lenders

• We found very little visibility into insurance monitoring and tracking,

prompting us to develop a technologically sound, low cost, data-driven solution that would help drive down fraudulent activity for lenders

The Size of Fraud

• Odometer mileage incorrect

(understated by 3000-4000 miles)

• Check Engine light validated
• Navigation not validated
• DVD/Rear Entertainment not indicated

PassTime Devices

2M+

Device reliability

99.6%

Devices deployed Tamper Rate: FinCo Tamper Rate: CU

4-5% 1-2%

Installation vehicle verification fraud

40%

False vehicle info upon inspection

$400-$500

• Avg. falsely inflated vehicle

value

Most common false vehicle items:

Case Study

Recourse companies identified over 50% of their tampers occurred at the end of the Dealer Recourse period at the Dealership location

estimate of fraud’s size

• Fraud Is An Ongoing Problem. Over 750,000* Vehicles Are Stolen Each Year Creating

Opportunities For Fraudsters To Take Advantage Of Consumer Situations.

• Many Of These Vehicles Are Sent To Chop Shops Or Sent Overseas. Others Have Their VIN

Cloned Which Is An Even More Lucrative Way For Criminals To Repurpose And Resell The Vehicle.

• More Than 2.5 Million Salvaged Vehicles Are Sold To Unsuspecting Buyers Annually.**
• There Are Currently Over 800,000 Vehicles On The Road With Washed Titles.
• Estimated That 5 Million Total Loss And/ Or Salvaged Cars Are Sold Annually.**
• 1.3 Million Vehicles On The Road With An Odometer Rollback.**

*NHTSA ** CARFAX

estimate of fraud’s size

Annually, auto finance companies charge-off an incremental $1.0 Billion dollars due to collateral misrepresentations. This charged-off amount directly impacts the consumers deficiency balance. 31% of all vehicles funded, and charged-off, are misrepresented to the auto finance company by an average of $1,100.00 per vehicle. Nearly, 1.0 million of the 3.0 million vehicles charged-off annually fall into this category.

How DIMONT defines fraud

• There are many variations of fraud that impact loan performance
• Income * Employment * Identity theft * Straw borrower * Dealer *

Collateral * Excessive dealer markups * Odometer * Yo yo * Document * Title * Insurance

• Broadly speaking, all fraud involves intentional deception for financial or

personal gain

• DIMONT’s insurance monitoring solution helps mitigate insurance fraud by

identifying in real-time any updates/changes to customer insurance status, i.e. customer claims to be insured but drops the policy immediately after purchasing the vehicle

• Our customers are utilizing this data to develop scoring models, build

reporting, identify customer behavior, and build collection strategies

How we see fraud

1.

Dealer Fraud:

a.

Vehicle information falsely stated such as equipment, odometer mileage, VIN and vehicle condition. Power Booking.

2.

Consumer Fraud:

a.

Borrower information falsely provided such as residence, work address, purpose/use of vehicle, possession of vehicle (Straw purchase)

Sure-Pass Vehicle Inspection Sheet

 CHECK ENGINE LIGHT for Sure Trac Use Only  OFF - CHECK ENGINE LIGHT  SUNROOF for Sure Trac Use Only  NO - Sunroof  LEATHER INTERIOR for Sure Trac Use Only  Leather  GPS NAVIGATION for Sure Trac Use Only  NO - GPS/NAVIGATION  TOWING PACKAGE for Sure Trac Use Only  TOW HITCH  REAR DVD ENTERTAINMENT for Sure Trac Use Only  NO - REAR DVD ENTERTAINMENT SYSTEM

defines fraud (collateral)

In The Context Of Vehicle History: Fraud = Compromised Vehicle History + Deception There Are 4 Core Areas Of Collateral Fraud

• Title Washing - The Process By Which A Vehicle's Title Is Altered To Conceal Information

That Would Normally Be Included. By Removing Salvage Or Flood Brands, Scammers Are Able To Give Dangerous Vehicles, Clean Titles. This Illegal Scam Places Unsuspecting Drivers Into Vehicles That Could Be Both Mechanically And Structurally Unsafe.

• VIN Cloning – A VIN From A Legally Registered Car Is Utilized In Order To Hide The

Identity Of A Stolen Or Salvaged Vehicle.

• Odometer Rollback - The Process Of Falsifying A Vehicles Recorded Mileage. Fairly Easy

To Accomplish Regardless Of Whether The Vehicle Possesses A Mechanical Or Digital

• Odometer. Consumers Lose As Much As $4 Billion A Year Due To Odometer Fraud With

The Average Odometer Rollback Being 30,000 Miles.

• Collateral Location – Vehicle Is Represented As Being In The U.S. But Is Not.

How

How defines fraud

The intentional misrepresentation of collateral at origination in an effort to manipulate the deal structure and deceive the entity funding the vehicle for the benefit of the selling party.

V e h icle In fo rm a tio n N A D A U s e d C a rs /T ru ck s V a lu e s

T ra d e

• In

B a s e M ile a g e A d j. O p tio n A d j. A d ju s te d V a lu e V e h icle : 2 1 4 C h e v ro le t C a m a ro C

• u

p e 2 D L T 3 .6 L V 6 A u to R e g io n : C e n tra l P e rio d : N

• v

e m b e r 8 , 2 1 6 V IN : 2 G 1 F B 1 E 3 X E 9 1 71 5 2 1 M ile a g e : 4 2 ,5

Rough $13,550 N/A N/A

$13,550

Average $14,850 N/A N/A

$14,850

Clean $15,900 N/A N/A

$15,900

Clean Loan $14,325 N/A N/A

$14,325

Clean Retail $17,950 N/A N/A

$17,950

11/8/2016

N A D A U se d C a rs/T ru c ks

V e h icle In fo rm a tio n N A D A U s e d C a rs /T ru ck s V a lu e s

T ra d e

• In

B a s e M ile a g e A d j. O p tio n A d j. A d ju s te d V a lu e T ra d e

• In

/L

• a

n R e ta il

S e le cte d O p tio n s

V e h icle : 2 1 4 C h e v ro le t C a m a ro C

• u

p e 2 D L T 3 .6 L V 6 A u to R e g io n : C e n tra l P e rio d : N

• v

e m b e r 8 , 2 1 6 V IN : 2 G 1 F B 1 E 3 X E 9 1 71 5 2 1 M ile a g e : 4 2 ,5 Rough $13,550 N/A $2,775 $16,325 Average $14,850 N/A $2,775 $17,625 Clean $15,900 N/A $2,775 $18,675 Clean Loan $14,325 N/A $2,775 $17,100 Clean Retail $17,950 N/A $3,125 $21,075 Navigation System $575 $650 Power Sunroof $575 $650 RS Package $1,250 $1,400 Boston Acoustics Stereo $375 $425

11/8/2016

N A D A U se d C a rs/T ru c ks

Vehicle is not “Power-Booked” and the maximum amount to finance (LTV) NADA Clean Trade - $ 15,900 x 120% (Lender Advance) = $ 19,080 Vehicle is “Power-Booked” and the maximum amount available to finance (LTV) NADA Clean Trade - $18,675 x 120% (Lender Advance) = $ 22,410

The biggest gaps in the industry today

• One of the main problems with fraud prevention is the use of multiple,

disjointed systems and tools to try and manage the process

• In-house systems and platforms, coupled with narrowly focused fraud

prevention strategies, create breaches that fraudsters use to their advantage

– Customers are affected by inefficient operations

• The critical factor for managing fraud is integration
• DIMONT’s tools address this by managing every aspect of the claim and

insurance monitoring process

– Because the customer insurance data is continually monitored in real-time, lenders can easily spot potentially fraudulent loans by identifying customers who immediately default on insurance coverage

The biggest gaps in the industry today

• Limited understanding of how the GPS device is actually used by

creditors

• Thinking that the GPS device is for Vehicle Location and Recovery only
• Not looking at the GPS device as a platform to deliver greater

consumer and creditor value

The biggest gaps in the industry today

• Standardization Of Resources - Industry Best Practices Are All Over The Place. For

Example, Title Washing Terminology Differs Across State Lines For The Same Or Similar

• Issues. Examples Of This Terminology Include:

Salvage Rebuilt Flood Not Actual Mileage Junk Totaled Lemon Reconstructed

• Data Sources And Categories Are Different Across The Industry And Vary Between States.

Fraudsters Take Advantage Of These Pain Points In The Industry.

The biggest gaps in the industry today

Auto finance companies realization of the problem, and a knowledge

• f a viable solution is starting to close the gap.

New disruptive technology has to cycle through the many departments within auto finance companies prior to approval. These large companies are starting to see dramatic reductions to their net charge-off balances and the positive impact to the consumers’ credit deficiency balances.

How DIMONT’s tech solves for fraud

• DIMONT’s automated, data-driven Insurance Monitoring solution captures

customer insurance data from carriers in real-time and distributes this data in a daily electronic feed to the lender

• The lender can initiate customer outreach to assist customers with changing

insurance requirements (e.g. expired policies)

• Because the customer insurance data is continually monitored in real-time,

lenders can easily spot potentially fraudulent loans by identifying customers who immediately default on insurance coverage

Dealer Fraud

How PassTime Helps with Fraud

• PassTime provides Certified installers for vehicle prior

to GPS installation

• Visual inspection validate common POWER BOOKED

equipment, Odometer and vehicle condition

• Sun Roof, Tow Package, Leather, DVD/NAV,

Power Seats

• VIN is verified through VIN Decoder
• Odometer verified and picture taken
• Vehicle condition and Check Engine light

inspected

Consumer Fraud

How PassTime Helps with Fraud

• GPS technology & reports are used to verify (or

contradict) consumer provided information.

• Do home/work addresses match info provided?
• Does State consumer is in match were vehicle

was purchased? (out of state buyer)

• Geo Fence alert – out of state violation, out of the

country, vehicle impounded or towed

• Mileage tracking – abusive use of mileage, excessive

use of vehicle (Commercial use, Taxi/Uber)

• Tamper device alert
• Abandonment alert

How CARFAX’s tech solves for fraud

• Our More Than 20 Billion Records From More Than 100,000 Data Sources Tell The Story

Of A Vehicle’s Unique History.

• Our Database Consists Of Odometer Readings And Location Records From Service Shops

And Title And Registration Information From DMVs. These Sources Help Us Verify Information And Provide Fraud Flags In Both The Business And Consumer Space.

How solves for fraud

Over the past 7 years AUTO I.D. has built solutions for tracking, identifying, and recovering collateral misrepresentations on behalf of the lenders. The technology identifies when a vehicle was misrepresented and our team of industry experts validate the errors through the programming technology and years of industry experience. This process provides benefits for lenders, dealers and the consumers. When an auto finance company receives recovery funds from a dealer the full amount is typically applied to the deficiency balance of the consumer.

What is preventing the industry from moving forward?

• Variations in state by state regulatory requirements make it difficult for

lenders to implement consistent processes (e.g. title fraud)

• Lenders have not traditionally addressed insurance tracking due to

– High cost of a traditional manual / paper process – Lack of an effective collateral protection solution – Lack of effective technology

• If we are to address insurance fraud effectively, we must direct

attention to utilizing processes that use data to identify potential issues in real time

What is preventing the industry from moving forward?

• Lack of awareness
• Under utilized features and benefits to maximize ROI
• Lack of dedicating right people and right process
• Poor execution of GPS management from failed organizations

What is preventing the industry from moving forward?

• Not Buying Into The Concept Of Big Data As A Fraud Solution.
• Outdated Procedures And Legacy Systems.
• Awareness Of The Scope Of The Fraud Issue.

What is preventing the industry from moving forward?

The industry is moving forward with this technology. Broader scale adoption and referrals from some of the nation’s largest lenders is accelerating the usage to become a normal part of the audit process with charged-off vehicles. The realization of the impact to the consumer is starting to create an urgency within auto finance companies from a risk and compliance perspective.

How has interest in fraud prevention changed

• ver time? What is driving the change?
• Data breaches with varying institutions are causing customers to lose

faith and have caused a shift – customers expect fraud prevention strategies from other entities such as their financial institutions, or companies storing the data

• Sheer amount of online data available has caused fraud to increase
• Fraudsters are getting more sophisticated
• A recent Lexis Nexis study found that along with increased costs, the

volume of successful and thwarted fraud continues to climb. This is driven in part by growth among larger multi-channel merchants, including those with digital goods

• More transactions are moving away form physical point of sale to

digital/mobile spaces

How has interest in fraud prevention changed over time? What is driving the change?

• Technology is more affordable, devices are

smaller and provide much more data.

• GPS has evolved beyond the worst credit

spectrum to other tiers

• GPS requirement for Repo Redemption is

growing among financial institutions that do not implement at point of sale.

• GPS stipulation to address consumers that

cannot provide positive proof of residence used to satisfy funding process.

• Increase use for validation of borrower

information as well as insulation of financial institution portfolio.

How has interest in fraud prevention changed

• ver time? What is driving the change?
• The Interest Of Fraud Prevention Has Changed Over Time And Will Continue Changing As

Fraud Itself Continues To Evolve.

• Changing Technology Creates New Opportunities To Exploit Consumers And Financial

Institutions.

• Big Data Helps Level The Playing Field By Providing Information Symmetry Throughout

Organizations And Across The Automotive And Financial Industry.

How has interest in fraud prevention changed

• ver time? What is driving the change?

Technology, and the historic lack of transparency in the entire life-cycle of vehicle funding is starting to raise the awareness around excessive risk and consumer protection. Fraud ultimately impacts the consumer and dealers. This realization is starting to drive greater adoption and interest on the part of lenders.

How does DIMONT see the industry evolving digitally to address fraud?

• We still have much to learn, but it starts with data, and using that data to build

strategies and defenses against fraud wherever possible

• Lenders understand that while the digital experience brings efficiency, it also

brings risk, and with this expectation build the cost of fraud into their forecasting (similar to retail stores building in losses for x% of shoplifters per year)

• Lenders continue to explore advanced technology solutions to address fraud

prevention

How does PassTime see the industry evolving digitally to address fraud?

• More request for integration with 3rd

party providers or proprietary software systems for automation.

• More request for partner integration to

link GPS data with other vendors (insurance tracking, payment processors, recovery agents, tow/impound lots, etc)

• Better analytics and data to identify fraud

and realize ROI

How does CARFAX see the industry evolving digitally to address fraud?

• Vehicle History Data And Fraud Flags Are Incorporated Directly Into

Lender Scorecards And Fraud Detection Models.

• Fraud Detection Models And Technology Have Evolved Due To

Interest Both For The B2C And B2B Landscapes.

How does see the industry evolving digitally to address fraud?

Technology will continue to drive innovation. Specific to fraud, greater transparency and monitoring will increase awareness and visibility.

How are companies using the DIMONT solutions successfully?

• Lenders are building reporting around the insurance monitoring data feeds

we provide

• This is triggering internal actions around building collection strategies
• Other lenders are utilizing the data for scoring model purposes, i.e., a

customer who has a cancelled policy because of nonpayment indicates a trigger

• We have found that insurance is often times a prediction of customer

behavior

• Lenders are building strategies into their upfront origination processes,

making sure that a customer has listed a lienholder within the first 15 days of the purchase of the vehicle

• These benefits are in addition to offsetting losses on damage claims

How are companies using the PassTime solutions successfully?

• Vehicle Fraud
• Installation Solution “Sure-Pass” for vehicle inspection/installation as
• pposed to Dealer install device.
• Some States require certified installer to meet compliance
• Consumer Fraud
• Using Location Summary to validate Residence, Work, other addresses of

importance

• Using Mileage Tracker to vehicle use and mileage abuse
• Using Tamper Detection(s)
• Predictive default early warning
• End of Recourse Period with Dealer
• In conjunction with delinquency or Broken Promise
• Using Geo Fence alerts
• Out of the state alert
• Out of the country alert
• Vehicle impound notification

Fraud Prevention using GPS

• Location Verification
• Verify Work
• Verify Residence
• Verify skip location
• Verify Mechanic/Shop
• Location Alerts
• Out of state – Geo Fence
• Out of country – Geo Fence
• Tow/Impound lot – Geo Fence

How are companies using the solutions successfully?

VIN Year Make Model Stolen Inactive Multiple Registrations Exported Out Of Operation Duplicate Title Issued 1FTEW1EP5GFB 77148 2016FORD F150 FALSE FALSE FALSE TRUE FALSE FALSE 1FMCU0G71FU C76866 2015FORD ESCAPE SE FALSE FALSE FALSE FALSE FALSE TRUE 1FAHP2E80FG1 61818 2015FORD TAURUS SEL FALSE FALSE FALSE FALSE FALSE FALSE 1FM5K8D83FG C55817 2015FORD EXPLORER XLT FALSE FALSE FALSE FALSE FALSE FALSE 1FMJK1HT4HE A35508 2017FORD EXPEDITION EL XLT/EL KING FALSE FALSE FALSE FALSE FALSE FALSE 3FADP4GX9FM 195566 2015FORD FIESTA ST FALSE FALSE TRUE FALSE FALSE FALSE 3GNEC12037G1 09291 2007 CHEVRO LET AVALANCHE C1500 TRUE FALSE FALSE FALSE FALSE FALSE 1FMCU0J92FUC 22941 2015FORD ESCAPE TITANIUM FALSE FALSE FALSE FALSE FALSE FALSE 1HGEM22594L 037214 2004HONDA CIVIC LX TRUE FALSE FALSE FALSE TRUE FALSE 1FTEW1EG7FK D54370 2015FORD F150 FALSE FALSE FALSE FALSE FALSE FALSE

How are companies using the Auto I.D. solution successfully?

Many of the largest prime and sub-prime lenders utilize the AUTO I.D. technology solution for recovering dollars, reducing losses, and identifying fraud. The AUTO I.D. technology platform and service solutions works with auto finance companies in the recovery process. Historically, this process has been done manually at the auction with pictures or a condition report. Now this is done from a technology platform and validated and executed with a team of industry experts to deliver the solution without negatively impacting sales or originations.

What is the role of emerging technologies like AI and biometrics in fraud prevention?

• Fraud prevention measures are evolving constantly as fraudsters find innovative ways to

access online data

• Behavior is becoming the new identity…companies are identifying customer patterns to

determine transactions are legitimate – these are being built by combining various types

• f online session data, mobile device data, payment transaction history, third party

identification data

• Biometrics (such as fingerprint scanning or facial recognition) are now being increasingly

used in mobile applications. They offer considerably more protection in cases where sensitive financial data is managed and offer a relatively seamless customer experience

• Banks are using data science, artificial intelligence that uses algorithms to analyze data,
• n spending patterns to identify activity that is consistent with money laundering and

fraud

• Other measures include online security measures, including firewalls and encryption, and

super-routers that are blocking entry at the source

What is the role of emerging technologies like AI and biometrics in fraud prevention?

• New PassTime GPS Technology
• Special Announcement at

NIADA in Orlando in June

• Location analytics to give user data

alert that consumer has moved/changed residence and/or work location

What is the role of emerging technologies like AI and biometrics in fraud prevention?

• Vehicle History Is Imperative In Detecting And Preventing Fraud. Moreover Vehicle

History Is Predictive Of Loan Performance.

• Automated Fraud Detection Technology Is The Future Of Fraud Detection For Lenders.

Valuation Of Collateral Will Continue To Grow In Terms Of Importance Through

• Automation. Data That Feeds Into Lenders AI Platforms Will Be Able To Detect Fraud

When Criteria Is Met. The Automation Of These Fraud Detection Flags Is Important To All Financial Institutions.

What is the role of emerging technologies like AI and biometrics in fraud prevention?

AUTO I.D. is a “learning system” that has taken nearly 7 years of refinement to qualify as an AI platform. Our vehicle data is continually being enhanced as changes to the vehicle configuration are logged and identified within the platform.

What is the future of fraud?

• *Online transaction fraud is expected to hit 25.6 Billion by 2020, which means

$4 in every $1,000 spent online will be fraudulent

• **Early days saw fraud impacts on individuals; fraud today impacts companies;

but now we are on the brink of fraud being used to destabilize economies

• **Fraudsters will never be fully stifled; there are too many options
• **We need to recognize when they’ve made it through and take steps to

prevent harm

*https://www.forbes.com/sites/kevinanderton/2016/05/27/the-future-of-fraud-infographic/#4409480c1d58 **https://www.wired.com/insights/2014/10/the-future-of-fraud/

The future of fraud Vehicle Deception Location Deception Tamper Deception

What is the future of fraud?

• Fraud Will Always Exist. As Technology Evolves, New Opportunities Arise To Exploit

Businesses And Consumers.

• Data Proliferation Helps To Level The Playing Field.
• Commercial Type Vehicle Use Is Expanding With In The Advent Of Ride Sharing

Technology.

• The Average Loan Length Has Increased To 69.5 Months According To Edmunds*.
• Fintech Companies, Or Those Who Use Technology To Improve The Lending Process, Are

Rising In Popularity. With Concurrent Fraud Practices Such As Synthetic Identity Fraud, Fraudsters Will Continue To Evolve And Form To Industry Thresholds.

*April 2018

What is the future of fraud?

Fraud will always be a part of any industry, including the automotive finance space. Technology, data, analytics, transparency, and security all play a part in reducing fraud, while giving a competitive advantage to those embracing new technologies. Additionally, the ultimate impact to the consumer will drive Executive Management and legal groups to force companies to evaluate and adopt new and emerging technologies.

Denis Brosnan President & CEO, DIMONT 972.428.6901 Denis.Brosnan@dimont.com

Kevin Carr VP of Financial Services

kcarr@passtimegps.com www.passtimegps.com Phone: 909-660-2443

Ian Frame

National Accounts Manager

Email - IanFrame@Carfax.com Phone - 571-926-1857 Website - CARFAXBIG.com

Andy Sallee VP of Sales and Business Development asallee@autoidinc.com https://www.autoidinc.com/ Phone: 615-942-5311

Joel Kennedy Director 240.308.2169 Joel.kennedy@spinnakerconsultinggroup.com www.spinnakerconsultinggroup.com