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Avoid Credit App Manipulation to Avoid Customer Litigation, Lender Fraud

Emily Hartman /
In this episode of The F&I Minute, Emily chats with F&I District Manager, Aaron Hartshorn, about how dealers will change a customer's credit application to be more appealing to lenders but doing so violates the law, commits lender fraud, and hurts your reputation with customers.
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today we are talking about credit application manipulation. Aaron, tell me exactly what it is because I don’t have a lot of experience in it. So, give us a lay of the land?

Absolutely. So, the definition or an opposition of credit application manipulation involves editing or falsely adding information to make the credit application contents more attractive to a lender. Really provide a better or a more attractive income to debt ratio for the consumer, or customer at the point. So, it can be an assortment of manipulations involving income, or rent, or mortgage. Or it can simply just be spaces left blank on a credit application that allow someone to add or edit some other information that’s in that?

 

Great. So, what do you…? I guess you kind of explained that, like, what do you see people doing when you see that manipulation? Otherwise, like, what exactly are people violating when they are changing someone’s application?

Well, let me speak a little bit more on the types that we see our auditors, our consultants see. So, we see date manipulation, we see job description manipulation, time. A job manipulation. Most common would be income manipulation, making it a little higher, obviously, mortgage or rent manipulation, and also signature fraud. So, you know, let me point out that those specifically aren’t written down or spoken to in a hierarchy. They’re all important in their own degrees, not one more than the other one. And also know that these manipulations normally occur with a sales individual, or a sales tower and the customer. So, a verbal coaxing, or coaxing of a customer to fill out their own credit application incorrectly or falsely would also fall within credit application manipulations fraud.

 

So then, what exactly are the liabilities when it comes to manipulation?

Well, I think the easiest one we’ll speak on is consumer litigation, customer complaints, reputation management. I think it’s important for us to bring up the oversight of the FTC. There’s been a large case that came down recently, and a four or five-star automotive group that was caught in doing falsified income consistently. It was a process they were allowing for management top-down, and the FTC struck pretty hard, and the auto group is bankrupt, and they’re out of business. And they also had a pretty large citation of over $1 million fine given to the ownership. So, the liabilities are there. There is oversight occurring. And I, you know, in another sense, keep in mind that it’s lender fraud.

You’re falsely providing information to a lender, your captive lender, or credit union of what the individual who’s applying for credit can afford, and is actually making money…how much money they’re actually making, or you know, how much rent there is. Or how long they have been at their jobs. So, you know, I can reference an image, obviously, which we’ll be showing here shortly, that shows two credit applications, two different incomes, two different mortgages, filled out at the same time, with a very large variance of income of $10,000. And that could be for many reasons why the tower or the salesperson thought that was necessary. But the main focus here, and the image I want to show you, obviously, is that it’s happening, and it continues to happen. And we want to shed some light on what our customers and other dealerships should be aware of, and to stop this practice from occurring at their dealership.

…It’s clearly happening. Is it happening a lot? Like, how pervasive is this?

I would say, just because of the sales process and the normal tenure of sales individuals, and also the sales management, it’s happening everywhere. It’s happening, I would say, at every dealership at some capacity, and it could be a non-predatory act. It could be just unknowing non-training happening at the dealership level. And it really requires a management down focus on making sure it’s not occurring, and oversight that if it’s occurring that you’re quickly reactive to correcting that sales person’s process or understanding or, you know, allowing that type of policy or process to occur within your dealership.

And you talked a little bit earlier just about like how much it cost one particular dealership that got dinged on this. Like how…is that typical? Like, how much does it normally cost if you violate some of these laws?

The FTC does a pretty good job of not providing exact numbers or amounts or citations. It’s crippling, I would say that for this. You know, lender fraud, you can have a reduction of lenders that you can…will work with you. So, you have, obviously, a loss in profit, a loss in potentially providing consumers options of getting the best rate at your dealership, which then, in turn, drops, you know, your profit for a dealership in general and your customer base. Customers can get 9% at another dealership, but only 12% in yours because your lenders are…shortens your amount of individuals you can send a credit application to has been reduced based on your previous practices. That’s an impact that although it’s not seen as a money citation or, you know, a fine, it also is an impact that dealerships are aware of, and they should be aware of that, even though it may be occurring and it does occur, there is direct oversight, and the FTC is making sure that these consumer complaints that are funneled up to Attorney General, to the FTC at the time, they’re doing investigations, and there will be cracking down as well more often. And it’s a focus of their legal team.

Yeah, that’s pretty terrible. So, what do you generally advise KPA customers and other dealers to do about it just to try and prevent it from happening?

First thing first is training. I mean, obviously, sales individuals normally have a quick turn rate at dealerships, so having a consistent training process to show what the requirements are for credit applications. The correct process of having the customer fill it out with their own handwriting, and/or their own typing. Obviously, everything is going to E-signatures and E-contracts now. Making sure that any adjustments or edits are including an initial next to it, so, you can show that the customer did make those changes based on errors. Errors do occur, we understand that.

Having management buy-in of understanding, and really making sure that each sales individual, or sales tower, or sales manager, or finance manager is held responsible for when they are caught doing this. And that they are trained correctly. Having internal audits. Having someone review those deals internally, like good cadence, is also going to be beneficial. And having a non-biased third-party auditor company or consulting company also kind of give you an insight of the health of your compliance environment, and also any potential liability that may be happening. And it’s really beneficial. And what we see as auditors is that we normally only pinpoint a certain person within the dealership that tends to have reoccurring, you know, signatures that kind of look like they’re not from the same person, or for applications with a lot of edits on them. And that’s really the benefit of training and then changing that process at the dealership.

 

Great. Well, thanks, Aaron, for coming on. And I think with that, we will wrap up today. Thank you all for listening.

Thanks for having me.

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