In December, Capital One Auto Finance sued Coad Toyota of Cape Girardeau, Mo., for more than $600,000 in compensatory damages, punitive damages, and attorneys’ fees. Detailed in court documents were 34 instances of alleged bank fraud, including phantom down payments and inflated sales tax charges. Seven pertained to powerbooking.
There are several ways to inflate the value of a sold vehicle and several reasons for doing so. As our resident compliance expert, Gil Van Over, has detailed in this magazine, dealership personnel — most often the sales manager — will misrepresent a vehicle’s trim level, options, or accessories to get the credit decision they want or cover a fee on a subprime loan.
The Coad Toyota case is only the latest to make national headlines. Van Over has cited one expert who estimates one in 200 U.S. auto loan originations is tainted by some form of bank fraud, including powerbooking as well as falsified credit apps, straw purchases, and outright identity theft.
And when fraud is detected, the finance source that bought the loan will invariably and justifiably demand compensation from the dealer. And unlike other varieties of fraud, powerbooking is, essentially, entirely within the dealership’s control.
Except when it’s not. Dealers can be victims too.
“When the dealer is standing in the auction lane, they have five or 10 seconds to figure out whether this Silverado has this package or that package and then make a split-second decision to determine their bid,” said Jared Kalfus, executive vice president of revenue for Black Book. “They make their money at time of acquisition. It can be a risky game.”
Black Book made waves in June with the release of Asset Verification Tool, a new solution designed to detect powerbooking at loan origination. Crediting a development team led by Director of Product Kyle Luck, Kalfus said the tool was made possible by leveraging VIN-specific coding in combination with multiple datasets, some of which are new to market.
And just in time, Kalfus tells F&I and Showroom, because Black Book’s auto lending customers were clamoring for it. “Many have said they use third parties to validate the vehicle; some have said they did not have the resources to develop their own platform internally. The common theme was they never touch the asset, despite the fact they play this integral role in its lifecycle.”
Kalfus and Luck both stress the fact that it’s not just auto finance sources that stand to benefit from the use of new technology to solve an old problem. They also work with dealers, who can access the enhanced data through the Black Book Cherry mobile app, as well as vehicle transporters, insurers, and government agencies.
Some insurers offer GAP, a product that demands accurate valuation — particularly in the current market, where pressure is mounting for F&I providers and administrators. Distracted driving has collision rates on the upswing. Fading demand for sedans, among other car types, is driving retained values down industrywide. GAP providers can’t afford to overpay on claims.
There is much the dealer can do to prevent powerbooking at their stores. Few are unaware of the illegality or repercussions of this particular form of fraud. And yet it remains prevalent.
Perhaps data-driven solutions will be the answer. Kalfus certainly hopes and believes it is so. He acknowledges it would have been nice if his company’s new tool, or something like it, had been available earlier, but it took a combination of pressure from the finance side and the expanding reach of new datasets to make it happen.
“Candidly, we initially thought of this as a lender-focused product. Sometimes you get lucky. It turns out it really cross-references and transcends many categories for us,” he says. “And we’ve had a lot of nice feedback. It’s about reducing risk. It’s about precision. It solves a problem.”
