By Ray Birch
ATLANTA—It’s a long-time practice in verifying income on a loan application–ask for a paystub. But the increasing availability of fake financial documents, including paystubs, is demanding that lenders to beef up their income, employment and identity verification processes, Equifax is warning.
Lou Loquasto, auto vertical leader at Equifax, told CUToday.info that more companies are emerging that are in the business of creating fake documents to be used for identity, employment and income verification. He said these documents are very authentic looking and hard to detect.
“They are actually very convincing,” he said. “I have downloaded several myself and they look like the real thing. We work with lenders who pay their funding department staff $200 for every fake paystub they catch, and it’s still difficult for them. These are hard to detect.”
He said the companies even have call centers to back up their documents.
“They have teams ready to take calls from lenders who will ask, for example, does Lou Loquasto work for TransUnion. Does he make $100,000. And they will say, ‘Sure, Lou works here at TransUnion and he makes that money, even though I don’t work there.’”
Companies Shut Down, But…
The Federal Trade Commission recently shut down several such companies, including Innovative Paycheck Solutions, which the FTC said operated FakePayStubOnline.com. In addition to fake paystubs, the website offered documents such as bank statements and profit-and-loss statements, the FTC said.
In promoting its services, the company boasted that the documents look authentic and were available for as little as $40 for a fake paystub to more than $150 for fake tax returns. The site offered visitors the choice to customize their documents and to edit real bank statements, touting its “Custom Fake Pay Stub” and “Fake Pay Stubs Online, Quick, Easy, Accurate Pay Stubs,” according to the FTC.
But Loquasto said that as soon as one of these companies is shut down, another is started.
“We have seen this business accelerate over the last five years as more lenders started to require more income and employment information,” he said.
Indeed, a Google search by CUToday.info of “fake pay stubs” immediately generated numerous companies offering their services.
The Biggest Threat
The biggest threat to lenders from the fake documents is not from crooks who use the articles to create a synthetic ID; instead, it’s from legitimate borrowers who want to get a loan for a larger amount than they might otherwide qualify for, explained Loquasto, who said a lot of the activity is happening with auto lending.
“There are three kinds of auto lenders—ones that don’t check anything, ones that verify income and employment with a paystub, and others that get income and employment data directly from sources like Equifax, who get that information directly from employers,” Loquasto noted.
Loquasto said that some auto dealers, while not being complicit in the fraud, often look to lenders that offer the path of least resistance—those who have weak employment and income verification standards.
“I believe dealers don’t condone use of these fake documents, but some are very aware of lenders that have stricter polices than others,” he said. “They know which lenders use verified income and employment data and those that do not. They may be tempted, for those deals right on the borderline of approval, to send the paper to those lenders who are not checking income documents closely.”
Loquasto recommended lenders carefully track which dealers may be sending them paper with overstated income. He said that Equifax estimates 15%-25% of auto loans in lenders’ portfolios today have overstated income on the borrowers.
Loquasto also recommends that for all borrowers below a 680 FICO that the CU used verified employment and income data. Above 680, he suggests lenders review this portion of their portfolio quarterly.
“Lenders are sending us batches of about 5,000 loans and asking us to check each borrower’s stated income, job tenure, employer…,” he said.
For the loans that come back flagged as having inaccurate borrower data, lenders are going back to the dealers and discussing the matter, Loquasto said.
“They are letting them know they are watching, like the cop on the corner, to reduce the chance this happens again,” he said. “And if it get egregious with the dealer, have an agreement that states the dealer must buy the contract back when this happens.”