UBS Hints At Rampant Auto Lending Fraud; "It’s Not Just Smoke And Mirrors Anymore"

Tyler Durden's picture

For months we've written about the imminently doomed auto bubble in the U.S., spurred in no small part by an unprecedented relaxation of underwriting standards by banks that would put even the shenanigans of the 2008 mortgage crisis to shame.  From stretched out lending terms to promotional interest rates, auto lenders have increasingly played every trick necessary to get those incremental new car buyers into the most expensive car their monthly budgets could possibly absorb.

That said, in recent weeks there has been growing concern that consumers, auto dealers and/or banks have been going beyond simply relaxing underwriting standards and have instead been forced to commit outright fraud in order to attract that incremental auto volume growth.  As UBS Strategist Matthew Mish told Bloomberg, “something is definitely going on under the’s not just smoke and mirrors anymore.”

The evidence is growing. First, the explosion of technology makes gaining access to information to improve credit scores very simple. Internet searches for 'credit score' are at record levels. Second, our survey finds 21% of auto loan borrowers admitted to some form of inaccuracy in their loan applications. Third, there is growing concern reported among auto lenders around fraud, which is the extreme case of this behavior.


Overall, the explosion and adoption of technology makes gaining access to "proven" methods for improving credit scores extremely simple. To this point, the popularity of internet searches for "credit score" has been rising consistently and is near peak post-crisis levels (Figure 7). Similarly, our survey finds that 21% of auto loan borrowers admitted to some inaccuracy in their application for non-mortgage related debt (auto, student or credit card loan). More concerning, this trend may be systemic as 29% of other consumer loan (i.e., student loan, credit card) borrowers acknowledged some form of inaccuracy in their applications (Figure 8).



Of course, this isn't the first time we've noted the probability that fraud is likely running rampant in auto lending markets.  In fact, according to a new study from Point Predictive, fraud rates on auto loan applications are currently reaching levels seen in the mortgage market back in 2009.  Per Bloomberg:

Borrower fraud in U.S. auto loans is surging, and may approach levels seen in mortgages during last decade’s housing bubble, according to a startup firm that helps lenders sniff out bogus borrowers.


As many as 1 percent of U.S. car loan applications include some type of material misrepresentation, executives at data analytics firm Point Predictive estimated based on reports from banks, finance companies and others. Lenders’ losses from deception may double this year to $6 billion from 2015, the firm forecast.


Those fraud rates are coming closer to the over-1-percent level for mortgages in 2009, when the financial crisis was boiling and more lenders started reporting incidents to one another, Frank McKenna, chief fraud strategist at the firm, said in an interview. While those losses will sting lenders, the impact on the overall economy will likely be much more muted than with the housing crisis, just because there’s less car debt outstanding.


Even so, “We see an extraordinary amount of parallels between the auto and mortgage industries, in terms of the rising levels of hidden fraud,” McKenna said. For home loans, it’s hard to know how widespread the deception was before 2009, because lenders often didn’t report information to one another and may not have even investigated incidents of probable lying much on their own, McKenna said.

And, right on cue, the New York City Department of Consumer Affairs was recently forced to file a petition against a group of Major World auto dealers alleging that fraudulent loan applications had been submitted to lenders that contained, among other things, inflated income and asset statements.  Per NBC New York:

According to a petition filed by the New York City Department of Consumer Affairs, sales people at the Major World dealer group prepared dozens of auto loan applications containing inflated income and asset statements. The false information helped unqualified buyers purchase vehicles they could not afford.


In 2014, the I-Team reported on Margaret Zollner, a car buyer who accused staff at Major Chevrolet of tricking her into signing a loan application that falsely stated her income was $60,000, even though she was an unemployed senior citizen who needed food stamp benefits to get by.


Zollner's application also reported that she owned a house, but she rents her home.


"They said I made $60,000 a year. I was on food stamps," Zollner said.


At the time, a spokesperson for Major World suggested Zollner was responsible for signing her name to inaccuracies on the loan application.

All of which helps explain those surging delinquencies....



...and loss severities in ABS structures.



All great signs of a "plateau."

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Dilluminati's picture

The whole f0cking industry is crooked, they are all f0cking cocksucker auto salesman and insurance thieves that wrote the laws they wanted.

Winston Churchill's picture

Not to worry , all those CDOs are triple A rated.

Oh wait................

Budnacho's picture

Now's definitely the time to get into the markets!

meta-trader's picture

you can add an extra 1500/USD week after week in your income just working on the internet for a couple of hours each day... check this link...

peopledontwanttruth's picture

If we know it's over, the gig is up, how much more so these at the top? They're all riding this pony into the ground and trying to position themselves and their families to escape the horrors and pain that is surely coming?

It will not work out for them, they're having their reward in full now.

MalteseFalcon's picture

The fraud will be forgiven immediately.

The fraud will be papered over immediately.

Auto loan reset for all.

All auto debtors that is.

hannah's picture

when your economy is based on central bank fiat EVERYTHING IS A FRAUD....HAHAHAHAHAHAHAHA

Mr. Universe's picture

So for those of us with 800+ credit ratings and no debt are again made to look the fool and pay the freight on others maleficence. It's OK, I can afford real money, so Ceaser, you can have yours back.

jcaz's picture

Really?  I thought Shaniqua actually qualified for that Mercedes S65 she's driving to her job at  McD's.....

serotonindumptruck's picture

You should see what her brother Jamal is driving.

Fisherman Blue's picture

He aint got shit on Travons escalade.

jcaz's picture

True- cause Travon gots rims on the Escalade- he financed those, too....

CNONC's picture

Actually, he leased them rims.

LyLo's picture

The manager of the Family Dollar at the end of my road has a brand new gigantic truck.  Also, his new teenage girlfriend looks pregnant, with her third kid.  His first batch are about to leave high school, so at least there's that.  Oh, should mention the managers of those stores in this area make well under $35k, and it's salaried.  Sure, the back of the big beuatiful truck is suddenly mysteriously full with bags of clothes, but I'm sure everything is fine...

True story, bro.  It's friggin' hilarious.  Had to share.

CNONC's picture

White trash hijinks. 

Juggernaut x2's picture

When your whole system is built upon the fradulent creation of money then everything associated with it is fraud as well

yogibear's picture

Time to max out those $50,000 CCs and buy physical gold (take delivery), then default.

Apply for CCs and say you make $300,000.

Giant Meteor's picture

correct ...

A scam system, needs better and ever increasing scams, to keep said scam system, scammin  ..

OR  the ole "house built upon faulty foundation", thing ..

It is so bad now, it's falling over, and what is left is being consumed by termites ..

yogibear's picture

Fraud has become the norm. Banks do it, look at LIBOR and CDOs. They scam the consumer and get bailed out by the taxpayer. 

Add in subprime autos and student loans. Nobody goes to jail, off to the next larger scam, caper.

LetThemEatRand's picture

But we were told in the 1980's that a financialized service economy could replace a manufacturing economy.  

Liars loans only exist because there is some other liar (central banks) who will bail out the lender at the expense of the shrinking group of people who fund the first liar's payments via taxes and accepting inflation as something that is supposed to happen.  Otherwise, the lender in the first instance would actually check to see if the person to whom they are lending can afford the payments.  Pretty simple stuff.

sixsigma cygnusatratus's picture

"...financialized service economy..."

I'll have a decaf soy latte with xtra foam, and I'd like to go zero down on that and take $12k out at closing.

serotonindumptruck's picture

I think we can do better than that.

How about a double cappuccino with organic polynesian coconut cream, and we'll even throw in a triple shot of coca leaf espresso with no income verification as a bonus?

WillyGroper's picture

swamp thang

you make my heart sang

you make everythang grooovey

Stan522's picture

2008....? Here we go again......

peopledontwanttruth's picture

No resurrection for this one. We're in no man's land's picture

FRAUD, it's the new truth.

TheCrusher1825's picture

Fuck the banks. They want your money but not your business.

NoPension's picture

I started my working life in a car dealership. At 15....40 years ago. Lot boy...washing and prep. At the time, you could get a license at 15 years, 9 months. I got mine the day I was eligible. Got the job 2 days later.
Learned and car "people " are the most unscrupulous group out there. I don't know high finance...they probably make car guys look like pikers. But cars are just the biggest money hole in your life.
I've purchased one new vehicle....ever. At 19.
Ever since, I buy clunkers and make them go. I get more satisfaction out of driving my 94 f250 with 294,000 miles, than you can imagine! No payments, routine repairs I do myself. Cheap insurance. Historic tags.
I get to drive the new stuff...can't even turn on the radio! Maybe...if things pan out , I'll pick up something late model when the dust up occurs.

pliny the longer's picture

know what you mean.  its an odd joy to keep a clunker going, hard to explain.  with the cost of repairs, not very handy here, i'm not sure its even cost effective, but its fun to drive a 250K (miles) vehicle, a sort of weird persons joy.  

sort of like running a marathon.  pure misery on a scale you can't understand unless you do it, but somehow strangely satisfying.

peippe's picture

oh it's a good thing

love that phrase; "emissions exempt" & no O2 sensor or cat or computer in my vw bus.


LyLo's picture

I once bought a Geo for $200.  I drove the bitch until she was literally scrap (not that she was far to begin with, mind).  So, I scrapped her.  Made a little over $200 at the junkyard.

I still can't describe the satisfaction of driving a car for over a year for the cost of insurance and gas.  The bus in my area costs more than that car did, and where I live the bus sytem is unusable anyways.  It was kind of scary to drive, and I don't even want to think of what would have happened in a serious accident, but...  Damn, it was sweet!

ebworthen's picture

Last Fall my girlfriend's Son, who had defaulted on 4 auto loans in the past 5 years, got $15,000 to buy a used car no questions asked.

The previous loan he'd driven a truck for two days before blowing out the pan gasket and continuing to drive with the "Oil" light on!

He called up the loan company and told them where on the highway it was parked.  One month later, $15K loan.

Pretty sure a zombie could get a loan.

Conax's picture

I know an old, grizzly repo man. He told me that one nasty looking urban beyotch told him, as he hauled away her new car upon which she hadn't made the first payment, "Dass awrigh', I buy a new one tomorrow."

This is no false alarm. Anyone with a pulse can buy a brand new car.

Used car prices are going to head south. Everything is fucked.

Twee Surgeon's picture

Not fucked if you buy Used Cars, Not fucked if you know your way around an Engine and the Spinny Things attached to it. Not Fucked if you have a car that is not all Computerized and Copy Right Data Only. Some are fucked but the Primal Wrencher Class will probably find their way as usual ? I know you know that. Just saying.

Conax's picture

Young kids just starting out are getting sucked in at the dealer and buying new rides they can't pay for. They'll lose the car, be fokked, still on the hook for the difference between what it auctions for and what they owe, with their newly established credit ruined.

Reasonable repayment prospects, a 10% down payment and a work history should be required before handing out $35,000 loans for something as unnecessary as a new car, to protect the dumbbells taking out the loans. These people don't even calculate the insurance, registration fees or maintenance costs either.  Selling off all the repo'ed inventory will take time, we'll see more layoffs in the automotive sector, the last of the decent industrial jobs we had.

Blue collar auto workers and marginally financed dumbbells will be fokked. Taxpayers will end up bailing out the crooks that did it.

Seasmoke's picture

Bankers. Insurance brokers. Real estate agents. Car dealers. USA is just one big fraud.   

Golden Showers's picture

Can somebody tell me why I would ever want a new fucking car? Just because I get approved doesn't make me want the fucking thing. I go to several auto dealerships in town every week and the dumb ass guy on the lot says HI thinking I'm there to deal and I tell him, I'm not shitting you, I tell him the only thing I'll buy from you is a newish Tacoma or Nissan truck or a Dodge Dually 3500 Diesel bitch that was in a rollover and is beat to shit but has a frame that's not bent. I'll pay money for it. I've been going past one dealership that has been in the process of being built for 3 fucking years. It just sits there and once a week it gets a new window or something. Un-fucking believable.

There's a shit hole corner store for used pieces of shit cars that flips deals more than the ten other new and used car dealerships with acres of parking lots. Something about that $950 cold AC written on the windshield in soap that makes niggers like me lick their lips.

If I want a durable good like a car or a washing machine, I ain't going to apply for the motherfucker. I'm gonna be that guy with cash who buys the fucking thing unless someone beats me to it.

Who wants this shit? Like how difficult is it to buy a toaster? Fuck, used to be when you opened an account with a 20 dollar deposit they gave you a fucking toaster. Now I got to go to a dealership and open an account and they give me a piece of shit free car? What the fuck is that shit? Think about it. People don't buy shit. They go to a place that has, say cars, or toasters, and they open an account and leave with a fucking appliance, or a durable good that they don't even own. How fucked is that?

HRH Feant2's picture

Plenty of people willing to take advantage of the ignorant and uninformed, sad to say.

That has to be the depths of depravity when you think selling a used car to someone that rents and is on food stamps is a good idea. Jeez I watched the video and this woman co-signed a loan which resulted in her having to file bankruptcy.

The auto dealer should have known that anyone that is on welfare also qualifies for free legal assistance. The dealers licence is being revoked. That is going to be one very expensive lesson.

Yen Cross's picture

  I came here for the comments...  We clearly have way TOO MUCH , low volatility on the cranium syndrome.

 There's really, only one fix for 'Low Vol Cranium syndrome'.  >LVCs<

  Sell The Rips...

Golden Showers's picture

Is LVCS like microcephaly? Or is it something like perceived value? Like most of the people I see drive vehicles with an extra 0 attached to it compared to the piece of shit I spent 15 hundred on 4 years ago. And to me nothing means nothing and 0 is 0. Zero. What drives (pun intended) people to want something as stupid as a liability that comes with a fake value with interest? Is it awesome to have a car payment? Yen, you really put it well. While Baltimore, (BALTIMORE, BABY!) hits the shitter and becomes that toxic waste part of town that is just right for project mayhem startups, soap factories and shit, do people who work jobs at Walmart and make more than I do an hour perceive value in a carriage? The only way to make value out of 2017 automobile is to recycle 95 percent of them and make them scarce.

As of 2012 165,000 new cars were produced every day.

As of 2012 there is an estimated 256 births per minute. Times 60 minutes is 15,360 per hour and 24 hours is 368,340 people born per day. Crude birth rate.

368,340/165,000 = 2.23418. So for every person born per minute there are 0.448 cars built. I live in the richest country in the world and I'm in my 40s and I've never bought a new car. So whatever this shit is that's pumping out these units.

If you look at the world poverty threshhold on wikipedia (for control) and see the number of people that live on $2 dollars a day or less, do you think they're buying new cars?

Who the fuck is so stupid that they could manufacture say 5 or six cars for each man and woman who could possibly purchace that shit given this basic data?

I'll tell you: dumb fuck car makers who don't know fucking arithmetic.

Golden Showers's picture

So now that I'm think about it, what is the break even point for any or all car manufacturers? I mean, how do you make way too much of something and what do you do with it? If oranges don't sell you make orange juice or something. Why would anyone take the effort to make a hundred thousand extra Hundays or whatever? Or is this what happens when you are subsidized by a government?

I mean it's not like I'm going to wake up tomorrow with a raging boner to drive a 2017 Hundai. Right? Even if I did, and I bring one home, my neighbor isn't gonna get jealous and get two. Like, I'm not gonna wake up and want to swap wives or something. You see?

Either way how do you convince some dumb fuck to come off the street and agree to spend $60,000 American fiat dollars on a durable good that loses $30,000 the moment you leave the lot with it? The only way you could get me to do it is to drug me or devise a narrative that involves my family being slaughtered or to threaten to run over a bag of kittens. And that's fraud. That's not a contract well met. That's just criminal. People seriously sign up for this shit?

Obviously this madness could be someone's doctoral dissertation. But when you break it down, the facts suggest there is something truly fucking insane happening with car production. What's even funnier is that Detroit is such a shit hole and American manufacturing is in the toilet. Like, wow.

yarpos's picture

Dont know what the market is like where you are in Qatar (richest country in the world) but all vehicles are not owned by individuals.   The government, businesses and the military all require vehicles.  The auto industry is hardly alone is terms of over production.

Whodathunkit's picture

Mercedes is the new Cadillac here in the ATL

sinbad2's picture

Sadly that is true, the cheap mercs aren't much better than Caddy's.

It's sad when something that became popular because it was quality, turns to shit.

peopledontwanttruth's picture

It's sad when something that became popular because it was quality, turns to shit

Are you talking about cars or the USA

VWAndy's picture

 Yea we could do that whole transportation thing better. Dam shame.

buzzsaw99's picture

zollner needs to get with the program. lulz

globalintelhub's picture

Open the floodgates for starved US investors ..

frank further's picture

Oops, double post, sorry.

alphasammae's picture

bankers and financial managers hardly ever go to jail for screwing up borrowers and consumers.