Lending fraud jumps in the equipment industry

Equipment financiers are enhancing their anti-fraud strategies through new technology, third parties, training programs and other measures amid increased lending fraud.

More than 80% of 135 surveyed professionals in the financial services industry have seen a nearly 14% increase in small- and medium-sized business lending fraud, according to a September report by LexisNexis Risk Solutions.

Fraudsters are becoming technologically sophisticated, Steve Blake, head of group integrated risk for global equipment financier DLL, told Equipment Finance News.

“The majority of frauds we encounter are old-fashioned in nature,” he said. “However, in recent years, we have seen an industrywide trend in sophistication in this area. Technology advances have accommodated fraudsters in probing for weaknesses, detecting and exploiting patterns, and creating sophisticated forgeries and fraudulent profiles.”

Among 30 surveyed equipment finance professionals, 43% said they were either somewhat or not at all confident in their ability to detect false identities, according to a January report by the Equipment Leasing and Finance Association.

Alarming fraud cases

Mark French, president of Atlanta-based equipment finance and leasing firm Crest Capital, told EFN technology and large-scale tech data breaches have enabled fraudsters to “more convincingly impersonate legitimate entities and craft more complex multi-layered attempts at fake transactions” leading to an uptick in fraudulent applications in the equipment finance sector.

“What’s driving this increase in lending fraud likely stems from economic pressures and shifting social norms, with schemes made more difficult to detect by exploiting online information and social media,” he said.

Heavy-equipment lenders have also recently experienced fraud attempts that put them on high alert, Chris Grivas, president of Chadds Ford, Pa.-based CAG Truck Capital, told EFN.

One case of identity theft in the commercial trucking industry saw a fraudster infiltrate an engine-overhaul financing deal after the lender, vendor and borrower had already been communicating via email.

“The repair facility didn’t have proper firewalls to protect the emails,” Grivas said “And what happened was, we sent the instructions to send a wire transfer and a bad actor got involved, broke into their emails and pretended that they were them talking to us.”

Fraudulent vehicle identification numbers have also posed challenges to the truck financing sector, Grivas said.

Best anti-fraud practices

Communication is key.

Constant and open communication is crucial in detecting and preventing fraud, DLL’s Blake said.

“Clear and regular communication, value-add training and a robust risk culture” are key, he said.

Third parties.

Hiring a third-party company is another effective solution. Third-party companies are constantly training their employees to detect new fraud tactics and remind them what to look for, Grivas said.

“They will send somebody, an individual, to photograph the asset,” he said. “They will verify the VIN number and then tell you that the truck is real, that the borrower is real.”

Tech solutions.

Tech-driven solutions are available to lenders to combat fraud, Crest Capital’s French said. These include:

Device fingerprinting and IP geolocation;
SMS authentication and IP skipping detection;
AI-powered document verification; and
Biometric recognition and liveness detection.

Despite the rapid advancement of these technologies, human expertise further ensures their effectiveness, French said.

And while AI has led to more sophisticated fraud, it can also be a “game changer for risk management,” DLL’s Blake said. “AI is not the only game in town,” he added, noting that the lender also “considers and invests in innovations such as telemetry, facial recognition and document scanning.”

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