Automotive Dealerships Need to Prioritize Identity-First Lending to Combat Fraud

In today’s fast-paced, digital world, consumers expect things to happen fast. This demand for instant responses has changed the way people shop for everything—including cars. But speed and convenience, combined with the pressure to close deals, can also create opportunities for fraudsters. Automotive dealerships are increasingly targeted by criminals looking to slip past outdated Identity Verification (IDV) processes, and when dealerships don’t catch fraudulent identities, these risks are passed on to lenders.

No country, business, or individual is immune to the risks of identity theft and fraud.

Photo Credit

Every day brings fresh reports of criminals refining their methods to steal personal data, coupled with warnings about massive data breaches that make sensitive information accessible to hackers on the Dark Web. "The world is grappling with the severe challenges of social engineering fraud, and organized crime groups…" said Yong Wang, Head of the INTERPOL National Central Bureau, in an INTERPOL news release.

Consider this: TransUnion reports that lenders across the U.S. face $3.1 billion in exposure from synthetic identities. With the rise in identity fraud in auto financing, it’s more crucial than ever for dealerships to adopt an "Identity-First Lending" approach—where you verify a person’s identity first and foremost before moving to their creditworthiness. This shift will help keep fraud out of the financial ecosystem, protecting dealerships and lenders alike.

The issue boils down to this: most dealerships still rely on “Credit-First Lending,” where a customer’s credit score is checked before their identity is verified. But this approach is risky! It allows synthetic identities—fake profiles that look like real people—to sneak past checks, resulting in billions in losses. Synthetic identities are hard to catch because they aren’t tied to a single victim, making them nearly invisible to traditional methods.

Paays has seen a huge spike in these synthetic identities appearing at dealerships. Fraudsters create convincing backstories to manipulate sales teams and push through deals with stolen IDs. One person claimed drastic physical changes from illness, while another blamed years of hard labor for looking different from their ID photo. Without advanced IDV technology, it’s difficult for sales teams to know when to question a customer’s story.

Why should dealerships switch to Identity-First Lending? Here are three key reasons:

1. Reduce Fraud and Protect Your Inventory

When fraudsters slip through the cracks, it’s not just about losing a car. Fraud can erode a dealership's reputation and damage relationships with lenders, who may start viewing fraud-prone dealerships as higher risk. We've seen instances at Paays where our lender partners have cancelled loans, leaving the dealership financially liable for the loss. By implementing robust IDV technology, you prevent synthetic and stolen identities from making it past the showroom, protecting your inventory and reputation.

2. Free Up Sales Teams to Focus on Selling

Without IDV technology, your team may spend valuable time manually comparing IDs and documents, often without specialized fraud detection training. When technology handles identity checks, your sales team is freed up to focus on building customer relationships and closing deals with peace of mind, rather than worrying about the legitimacy of every buyer. Paays cuts down on operational costs tied to handling paperwork, photocopying IDs, and decision-making burdens for front-line salespeople and F&I managers.

3. Boost Confidence with Lenders and Consumers

Lenders are increasingly wary of working with dealerships that don’t prioritize fraud prevention. By adopting identity-first processes, you’ll assure lenders that your dealership is committed to fraud prevention. This can lead to stronger lender partnerships, more financing options, and a better experience for customers who appreciate the added security.

Making Identity Verification Easy and Effective

Paays equips automotive dealerships with advanced technology to reduce friction and swiftly identify synthetic and stolen identities—even when fraudsters have convincing stories and highly realistic fake IDs. Many times, these individuals leave when they realize our verification system has flagged them, trying their luck at the next dealership down the road. In several cases, the system’s alerts have even led to police involvement and arrests, protecting both the dealership and lender from significant losses.

At Paays, we’re seeing organized criminal groups attempt fraud across multiple dealerships, often reusing the same fake IDs or showing behavior patterns we’ve identified as red flags. With our oversight across automotive dealerships, we track these attempts and proactively warn dealerships, helping them stay one step ahead of fraud.

When you put Identity-First Lending into action, your team can focus on what they do best—selling cars—without fear that a fraudulent application will come back to haunt your dealership. Let’s take a proactive approach to fraud prevention and make sure your dealership is set up to succeed in a changing, high-risk environment.

In my next blog, I will explore in more detail why the shift from “Credit-First Lending” to “Identity-First Lending” makes sense!