Dealerships hold a highly visible role in their communities. Not only do they provide jobs for residents, support local organizations, and provide valuable funding for state, county, and city government, but they’re also responsible for safeguarding consumers personal information. With all that data—and valuable inventory on the lot—it’s no wonder dealers are targeted by fraud.
Growing awareness of fraud means consumers are becoming more concerned about protecting their personal information. In the 2024 Cox Automotive Evolving Consumer Study, more than 3 out of 4 consumers said they’ll only share information with companies that are transparent about how they protect their customer data when they make their next car purchase—and more than two-thirds say it will be harder for companies to earn their trust compared to in the past.
What Is Fraud?
Fraud is the intentional use of deception to gain an unfair or illegal advantage, often involving financial gain or access to goods and services. The fraudster may misrepresent information, act as another entity, or use stolen data to obtain access to accounts or data.
Meanwhile, a scam is a type of fraud that requires the victim’s active participation. For example, a bad actor is committing fraud and scamming a target if they falsely claim to be raising money for a nonprofit organization and the victim sends them money.
Types of Fraud
When a dealership’s staff understands the types of fraud, they are more willing to adopt tools and use safeguards that can help prevent financial fraud and crime.
First-Party Fraud
In first-party fraud, a person purposely misrepresents themself in exchange for monetary gain or goods and services. For example, someone may use their credit card to buy an item online. They receive and then use that item—but they tell the credit card company they never made the purchase or received the product. Since these cases are hard to mitigate, the merchant is often left with the loss.
Credit washing, a type of first-party fraud, has a significant impact on the automotive retail community. Here’s how credit washing works: Individuals will change information, remove debt, or add payoff to their credit reports—or they’ll falsely claim identity theft to wipe it clean. Ultimately, the lender or dealer is underwriting a consumer using inaccurate information, putting them at greater risk of loss.
Third-Party Fraud
Third-party fraud, commonly referred to as identity theft, occurs when an individual or entity uses someone else’s personal information—a name, address, Social Security number, date of birth, passwords—without their knowledge. Phishing, data breaches, social engineering, card skimming, and stolen documents are common ways for fraudsters to collect this information.
Once the bad actor has a stolen identity, they can use that information to access and take over online accounts, create new accounts, and perform unauthorized transactions. The victim typically has no idea their identity has been compromised until they notice suspicious activity on their bank statements or credit reports.
Synthetic Identity Fraud
Like traditional identity theft, synthetic identify fraud begins with a stolen piece of a real person’s personal information, such as a Social Security number or date of birth. The difference? That stolen information is combined with falsified information to create a whole new identity.
Synthetic identity fraud can be challenging to detect, and identity verification methods are not designed to flag fake people. Additionally, to make the fake identity seem more realistic, people who engage in synthetic identify fraud typically build a responsible financial history before becoming delinquent on payments.
Strategies to Prevent Fraud in Automotive Retail
Education and awareness across the entire dealership are essential to the successful adoption of fraud prevention tools and practices. Try some of these best practices to build a “fraud-aware” culture at your business.
Invest in Training and Awareness
Regular training for dealership employees has proven to be one of the most effective ways to mitigate fraud risks. Educating staff on regulatory requirements, ethical sales practices, and how to identify red flags empowers them to act as the first line of defense.
Implement Robust Compliance Programs
Dealerships should adopt comprehensive compliance management systems that include periodic risk assessments, monitoring, and testing of existing protocols. These systems must be reviewed and updated regularly to address emerging fraud risks.
Leverage Technology
Using technology like electronic identity verification systems can aid in authenticating customer information during credit applications. Real-time data, device behavior tracking, and fraud detection tools can identify suspicious activity earlier in the consumer journey and flag it so employees can perform due diligence earlier in the process.
Integrate Checkpoints Into Your Sales Process
Develop a risk-based identity theft prevention program (ITTP) in compliance with the Federal Trade Commission’s Red Flags Rule and use it with every customer and document that flows through your dealership. Select red flags that are appropriate for your business and document a process that outlines what to do should red flags arise. For vehicles sold over the Internet or to customers who never physically step into a dealership, make an extra effort to verify those customers’ identities.
Today, real-time data, device behavior tracking, and fraud detection tools can identify suspicious activity earlier in the consumer journey, but a strong ITPP can protect a dealership more than anything else. By flagging any suspicious activity, employees can perform due diligence to protect the business from the risk of fraud.
To learn more about fraud prevention in the dealership, download the 2025 Dealertrack Compliance Guide.
