Equipment finance fraud – New tricks and how tech is fighting back

The equipment finance industry is growing, but with growth and opportunity comes risk. A troubling 10% year-over-year increase in equipment finance fraud is putting a dent in profits. Current fraud prevention tools are often failing to catch the new tricks lenders are seeing, leaving them exposed to potentially devastating financial losses. 

So, what can you do to protect your business? Keep reading to equip yourself with the knowledge to fight back. We’ll explore the different types of equipment finance fraud, why legacy methods and systems fall short, and how the next generation of technology is changing fraud prevention.

Common Equipment Finance Fraud Schemes

Fraudsters are employing a diverse arsenal of tactics to target equipment finance lenders. Here’s a breakdown of four common types of fraud you might encounter:

  • 1st Party Fraud – This occurs when a legitimate borrower intentionally misrepresents information on their application. They might inflate equipment value, fabricate revenue figures, or create a shell company to secure financing.
 

Example: A construction company facing financial difficulties might inflate their revenue on the loan application to qualify for a higher loan amount. They might plan to sell the equipment quickly or misuse the loan proceeds.

 
 
  • 3rd Party Fraud – Real Identity Theft – Fraudsters may steal a real person’s identity, such as their Social Security number, to apply for financing on their behalf. This can be particularly damaging as the victim may not be aware their identity is being misused until their credit score suffers.
 

Example: A packaging company owner with impeccable credit receives a past due payment notice for a shrink-wrapping machine she’s never heard of. Confused, she learned someone used her identity and business history to secure financing and directed the funds to an offshore account.

 
 
  • 3rd Party Fraud – Synthetic Identity Theft – This tactic involves weaving real data (like a social security number) with fabricated details to create a fake borrower. Unlike impersonating a real person, this invents a new identity, making it difficult to detect with traditional methods.

 

Example: A fabricated company submits a loan application with a seemingly legitimate social security number and falsified financial statements. References, websites, and reviews are all meticulously crafted to create the illusion of a real business. With AI easily available, this type of fraud is becoming more prevalent and harder to catch.

 
 
  • Document Fraud – This involves forging or altering documents to misrepresent financial information or the legitimacy of a transaction. This could include falsified financial statements, fake IDs, or even manipulated invoices to inflate equipment costs.
 

Example: A borrower submits fake income statements with inflated revenue and lower expenses to appear more profitable and deceives the lender into approving a loan or lease.

 

Why traditional methods fall short

Equipment finance has traditionally relied on manual fraud reviews and basic identity checks to detect fraud.  Here’s why outdated legacy systems are no longer enough.

Time consuming manual reviews
Manually reviewing applications is a tedious process that leaves room for human error. Fraudsters can exploit these vulnerabilities by submitting seemingly legitimate applications with subtle inconsistencies. This process also delays legitimate transactions and frustrates borrowers, leading to a poor customer experience.
Limited data access
Traditional systems often rely on a limited set of data points, making it easier to manipulate information and bypass detection, particularly those utilizing synthetic identities or deepfakes.
Inability to adapt to new tactics
With generative AI readily available, it’s easier than ever to create new ways to defraud lenders. Legacy systems often lack the flexibility to adjust and identify these threats.
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Tech to the rescue

The good news is the fight against equipment finance fraud isn’t a losing battle. Technology offers powerful solutions to help you stay ahead.

  • Automated verification – Fintech from industry leaders like Plaid and Ocrolus automate tasks like facial recognition and document analysis, streamlining the verification process and reducing the risk of human error.
  • Real-time data integration – Tapping into-real time data sources from leading fraud prevention providers allows you to access vendor, borrower, and guarantor insights – helping you identify potential risks before they become problems.
  • 360-degree Fraud scoring – AI-powered solutions can instantly analyze massive amounts of data from multiple sources to identify anomalies and suspicious patterns, then can generate a comprehensive fraud scorecard that helps you assess risk quickly and efficiently.

 

We’ve just scratched the surface of equipment finance fraud and the power of technology to fight it. Ready to learn more? Download our white paper, “The Growing Challenge of Equipment Finance Fraud,” for a deeper dive into specific examples of fraud attempts, the advanced solutions available – like auroraFraud360, and how a comprehensive fraud scorecard can empower you to make informed lending decisions.

download the white paper