Connected at NADA 2025: Ken Hill

Greg Uland [00:04] Hi, I’m Greg Uland with Reynolds and Reynolds and this is Connected. We are at the NADA show in New Orleans. Right now, I get to sit down with Ken Hill. Ken is the managing director at 700Credit. Ken, thanks so much for joining me.

 

Ken Hill [00:15] Thanks for having me. I appreciate the opportunity.

 

Greg [00:18] Absolutely. I think, gosh, it's been a few years ago, but you were on with me… I mean, it was probably at least 2 or 3 years ago we did a remote session.

 

Ken [00:27] Yeah. And we were talking about prequalification and where it's integrated within the Reynolds system.

 

Greg [00:33] Yeah, for sure. Well, today I wanted to start, Ken, just talking about the topic of fraud kind of in general, and then we can dig a little deeper. But at first, thinking about fraud, and obviously there's a lot of different types that you can probably go into exquisite detail on, but what are some common ways, at least in today's world, you're seeing dealers be hurt by various types of fraud?

 

Ken [00:55] Theft. Walking out of the dealership, going for a test drive, never coming back. Synthetic fraud is on the rise. Two years ago, it was an $8 billion problem and it's probably tripled since then. Synthetic fraud is where a fraudster makes up a synthetic identity by creating a credit file, filling out a credit app online and that creates a credit file. And then they build on that credit. The authorize users are added. They pay, I don't know if you ever used authorized users before, I use them for my kids to build their credit. So they'll pay a fraudster, or they'll pay a good person to add that fraudster profile as an authorized user. So it inherits all the credit. And then they continue to build that credit over two years. And the problem that our industry is facing is that they're working towards the bust out. And the bust out is where they walk away from all that debt. They’ll max their credit cards. And the last thing they'll do before the bust out is they'll buy vehicles. And then they walk away. So unfortunately for our industry, we're their target. And these are organized fraud rings. It's just not one guy in a shop, although it could be. It's typically a fraud ring of five or six people. And then they'll, some of them that have been caught, there's four or five vehicles in a lot that they have stolen that day and walk away with. So fraud is definitely on the horizon. And I think we did a survey, and it was a very high, I think it was 40 percent experienced more than two vehicles stolen a month.

 

Greg [02:52] Really? I mean, I must just be naive because that seems just crazy to me. Wow. So, and again, just probably lack of education on my part, so I might ask some stupid questions, if I do I apologize. But, I think of a vehicle, right? A vehicle's got a VIN. A vehicle's going to be registered with the state. Everything's kind of tracked. So how do people get away with this? Right? Well, then you think about the world that we're in today and how connected vehicles are. Right? And in a lot of cases, you can pull up a vehicle on an app and see exactly where it's at. So how do how do people get away with this in today's world?

Ken [03:34] Well, cut shops or freight containers. There was a dealership in Pennsylvania, I think it was Maserati or, no a Lamborghini dealer. And a couple walked into the dealership and took off with two Lamborghinis. Gone. They took them out for a test drive, never came back. And they caught them at the seaport loading a container ship on a ship with the Lamborghinis inside the container. That's a story I hear a lot. They put them on containers and ship them overseas.

 

Greg [04:13] So do you see, I assume stories like that happen more on the edges of the country, towards the coasts?

 

Ken [04:20] Well the container stories, yes. But theft is not isolated to one area.

 

Greg [04:25] So what are some other examples? I'm just, again, I'm trying to wrap my head around…

 

Ken [04:31] What are they doing with these cars?

 

Greg [04:32] Yeah, and a vehicle is obviously something that's very expensive, very valuable. So, I understand that aspect of it. But what do you do with the car? It's not like you're just going to drive it around town, right?

 

Ken [04:43] No, you’d take it to a cut shop. Break it all down. Sell off all the parts. All the parts don’t have VIN numbers.

 

Greg [04:51] Sure.

 

Ken [04:52] So there are a lot of things you can do. And they know where the VIN numbers are, Right?

 

Greg [04:57] Okay so, talk to me more about synthetic fraud. You mentioned two years. Why is two years the magic number? Or is it?

 

Ken [05:08] It takes a while to build your credit. You can't go out and apply for ten credit cards today. So it takes, first of all, when they add that fraudster as an authorized user, they inherit the payment patterns of the credit card that the consumer is paying. So it takes a while for that credit score to… now I can apply for another credit card and it takes a while for that credit. So I'm trying to build several lines of credit. In most cases, we've seen like 750,000, I think is the average price for a synthetic fraudster and how much they walk away with. And then I max out my credit lines and make that big purchase at the end of that bust out. So, it takes time. They're patient, which is the scary part.

 

Greg [05:59] So then what happens… so a dealership sells a vehicle to somebody who's committing fraud. So that paper that they sold, the paper that they sold to the bank is obviously not worth anything. So then does the bank then reject that if they catch it in time, or who's responsible?

 

Ken [06:21] That's the big question I think, who's responsible? In some situations, the lenders are responsible, and in most situations, the dealer is responsible. Now, larger dealer groups, they have a little bit more leverage with the lenders. But certainly smaller dealerships, they don't. So they're on the hook for that. Most of the time, the dealer’s on the hook.

 

Greg [06:47] It's unbelievable. So obviously, there's processes that everbody has in place. There's some regulations that are there to also help protect the dealer and everybody else. So talk about some of those things. I know we were chatting before we started recording about ID verification and things like that. So, share a little bit about what you're doing at 700Credit in that world.

 

Ken [07:06] Sure. Well, we've had a couple of webinars and actually last year at NADA we did a show with the three credit bureaus and their analytics experts on how to detect synthetic fraud. And so there are some models that you can add to your credit report that that look for that synthetic behavior. It's a synthetic scorecard. But also the take away was, how to fight this. It's get to know your get to know your customer. And the best way to fight fraud is to capture the driver's license and authenticate it as early as you can in the process. So you're raising your level of protection, right? You just do it in the finance office, you're exposed all the way to the finance office, to that fraudster. But if you do it at the beginning of the process, you're protected. But driver's license authentication. We just finished our integration with Reynolds, that can be integrated with and you can initiate a driver's license scan from within Reynolds and all the images are placed in the digital deal jacket. But, authenticating the license is your best wall of defense.

 

Greg [08:24] Yeah. What other steps are there? What other things can you do, or even, what other things are you required to do to help prevent this type of stuff?

 

Ken [08:37] Well, the synthetic fraud score, driver's license verification, dealerships are required to do red flag. Those are all things that help prevent. There's other types of verification where you can always ask out of wallet questions. There's geo-based questions now that are also available. So there's several things dealers can do. But I would say the most important is to, dealers are capturing licenses anyways today - when they capture the license, authenticate it.

 

Greg [09:10] So how do you as a dealer, because this stuff can be scary, and if it happens to you, or it happens to somebody nearby, somebody that you know, your defenses are going to go up, right?

 

Ken[09:20] Yeah.

 

Greg [09:21] So how do you do this stuff in a way that doesn't feel accusatory? And then also-

 

Ken [09:26] We’re adding friction to the process.

 

Greg [09:29] Yeah.

 

Ken [09:30] Well, as I mentioned, dealers… there's another benefit to capturing the driver's license is that dealers are required to safeguard consumers information. That safeguard regulation that went into place last year. And one of the best or the points of weakness inside of a dealership is they're required to capture images of the driver's license. How are they doing that today? They're making photocopies of licenses. Putting them in a paper deal jacket or scanning that photocopy and manually dropping it in the deal jacket. I purchased a car at the end of last year and the sales rep wanted me to text him a front and back image of my driver's license. That's not to say, that's not safeguarding consumer information.

 

Greg [10:21] Right.

 

Ken [10:24] Making photocopies of driver's licenses going away so the faster you can get ahead of the curve, the better. When I'm making a copy of that driver's license, I have to do that anyways. So with our driver's license scanner, you can send a link to the consumer. They take a front and back picture of their own. It's nothing new to install on the consumer's phone. It's a web service. They take a selfie. And that validates the driver's license against the state specifications for each state. We compare the selfie to the image on the front of the driver's license. We compare the information on the front to the back. We run some synthetic fraud checks on that. We do a public record database and we also do a DMV lookup. All right. And then we take those images and we place them in an Reynolds deal jacket. So you're sort of two birds with one stone, right? You're adding that layer of fraud protection and you're also safeguarding that consumer information because that's really the biggest point of exposure, is how dealers are capturing licenses and how they're storing them. So, take inventory of what's happening in your dealership around your driver's license capture. And that's to answer your question, that rabbit hole to your question. You asked, “how do you make it feel noninvasive?” And that's incorporate the process. And I think it's a better experience for the consumer. Right? I'm not handing my license to someone and they're walking in the back room with it. Right?

 

Greg [00:12:13] Yeah, you're right.

 

Ken [00:12:14] So it's a better experience for the consumer. So I think it makes for a better workflow.

 

Greg [12:21] Talk to me about that selfie technology. Because, well I'm thinking, a dealership or a driver's license is good, usually, for four years. Somewhere in that range. And for some people, they can look a lot different in four years. Depending on the phase of life that they're in, maybe they don't have as much hair…

 

Ken [12:37] It's all in here. Your eyes. I don't know if you, do you use clear?

 

Greg [12:43] I don't.

 

Ken [12:44] It's an optic, right? And it's from back here. It's an optic scan. Yeah. And I can pull up your file, but that's important, because in that selfie, and when we compare it to the image on the front of the license, there's also a liveliness detection. What some fraudsters will do is they'll steal an identity, and they're working a deal remotely. They'll send images of a driver's license, like they’ll steal somebody’s driver's license. They'll send images of the license, and then they'll take a picture of the person that's on the front of the license and submit that as their selfie. So that's that liveliness detection piece. It's not a picture of a picture, this is a selfie. So that's the important piece. And you would be surprised at the selfie comparison to the driver's license and what matches. We have a couple of stories. The guy was like, “there's no way that's going to match” and it matched. Because that person changed their look, the color of their hair, earrings, tattoos - and it matched.

 

Greg [13:57] Wow. That's great to hear, but it is pretty cool technology. When you can do that facial recognition. Picture, match it up to a selfie. That's impressive.

 

Ken [14:07] Yeah, it is. As much as we can do. The DMV is too. Because it should match. So you're putting all these points of verification together. Liveliness, image on the driver's license, information on the front. Is it out there in the public records? Does it match? It should match 100%. And a couple of things that we're coming out with - a true false, if it's an active license, or suspended. And then we're also… the DMV, they're going to do their own image verification. To make sure that the image that we submitted to them on the license is what they have on file. Because that's another thing fraudsters will do. They'll fix an image on a license.

 

Greg [15:06] That makes sense. So talk to me a little bit, Ken, too, about the compliance piece of this. How do you make sure it gets done every single time? And then how do you prove it if you ever need to?

 

Ken [15:18] Well, Reynolds has a stopgap, right? I think they call it “stop deal.” You can stop a deal until that's performed. You can stop a deal in Reynolds until an OFAC is checked. You can stop a deal until a red flag is run. And passed. So that sort of gives dealers some assurance that these things are happening and all those things go in the deal jacket. So now I have an audit report that I can run that shows: this is everybody that bought a car and these are all the things that I did. And typically when they do an audit, they'll ask for certain consumers deal jackets, and go in and I can bring up the deal jacket and display it.

 

Greg [16:09] So just having everything… what I took away from that was, go all electronic on everything. So it's there, it's documented, and you can make sure to pull it up whenever you need it.

 

Ken [16:19] Yes. Right. For an audit. And the reporting is a critical component, too.

 

Greg [16:21] That's true.

 

Ken [00:16:22] So I can summarize: This is what I've done, where do you want to dig in? And then they'll dig in. And you'll see, okay, and they'll dig in a couple more. A much faster audit. Oh wait, you got an issue here. Let's look a little bit deeper. More expansive.

 

Greg [16:41] Yeah, that makes a lot of sense. So, Ken, what haven't we talked about that we should? Anything I haven't asked you that I should have?

 

Ken [16:48] Well, I think we talked about safeguarding consumer information and getting driver's licenses, safeguarding consumer information, getting that in the deal jacket. But there are other important pieces of information that should be in the deal jacket. I know that we've expanded on within Reynolds, right? No matter where the dealer's pulling red flag, RouteOne in its external system, or in Reynolds - we can get that information in the deal jacket. The risk-based pricing notice - we can get that into the deal jacket. If your dealership has DEALsign or docuPAD - we can make that risk-based pricing notice part of the signing ceremony, whether they pull the credit in Dealertrack, RouteOne, or in Reynolds. Wherever they're pulling credit, we can get that. So, getting that information in a deal jacket is important and eliminating the printing.  Do some audits of what you're printing. Where is consumer information in my dealership and how do I electricize it and get it in the deal jacket, and not laying around on a customer's desk.

 

Greg [17:52] Yeah. Love it. Love it. Alright. Well, Ken, thank you so much. Thank you for taking time. I hope you have a good rest of your show, but I appreciate you taking time with me.

 

Ken [18:01] Thank you. I appreciate the opportunity.