U.S. federal and state authorities are investigating used-car dealerships to determine if they are inflating borrowers' income or falsifying employment information on loan applications to make sure anyone can purchase a car.
The New York Times was the first to report the news, citing, people "briefed on the matter."
Falsified loan applications can lead borrowers to fall behind on their repayments and could mean trouble for investors like insurance companies and public pension funds.
As auto sales recover from their recession-era slump, the industry's supply of used vehicles has started to rise again. Salesman at some used car dealerships are suspected of getting inventive, under pressure to generate more and more loans.
"I see more fraud now than I have seen in my entire career," said Ronald Burdge, a consumer lawyer in Dayton, Ohio, who has 48 clients whose credit applications were falsified, according to The New York Times. "I am just one guy. What is happening in Atlanta or New York?"
Though investigations are still in the early stages, authorities are also looking into whether lenders are turning a blind eye to signs that the loans are fraudulent, including some major banks and credit unions, according to the newspaper.
Car dealers say their industry, like most large group of businesses, has the occasional "rogue employee." Dealerships go to great lengths to confirm the accuracy of credit applications though.
"There is no place for fraud," said Steve Jordan, executive vice president of the National Independent Automobile Dealers Association, according to the paper.
Still, he added that, "there is a responsibility on behalf of the consumer who signs off on the terms and drives off in the car."
In the second quarter, total auto loan originations were at the highest level since before the financial crisis, according to the Federal Reserve Bank of New York.
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