When most people think of scams and bank fraud, they typically think about crimes being committed by a criminal. Usually, this is the case, but several scams rely on unwitting consumers to perpetuate them.
In some cases, the consumer is directly manipulated by a criminal, but in other cases, the consumer takes an action they think is okay because they don’t understand its criminal implications.
Here are five of the most prevalent consumer-related scams happening right now along with tips on what your financial institution can do to minimize the threats.
1. Using Credit Privacy Numbers to Create Synthetic Identities
Synthetic identity theft is when someone creates a fake identity to open credit cards or bank accounts. Rather than stealing someone’s real identity, the fraudster creates a fake identity often using a stolen Social Security Number with false personal information. Or, they may use their own name and address along with someone else’s Social Security Number.
This type of fraud is prevalent because financial institutions aren’t setting up internal controls to stop it, and credit bureaus cannot choose which profiles they create, basically forcing them to create synthetic identities. Credit bureaus are required to create credit profiles for all credit applicants — they don’t have the right to distinguish between synthetic and real identities.
Beyond the financial industry’s welcoming attitude to synthetic identities, one of the other reasons this type of fraud is growing is because it’s not limited to criminals. Many consumers think that Credit Protection Numbers (CPN) are legitimate. Not understanding the illegalities, they buy these numbers from companies who say they can help with credit repair, and they use them to open accounts rather than their own numbers.
To fight synthetic identities, financial institutions need to invest in robust anti-fraud tools that look for signs of new account and loan application fraud.
2. Increasing Credit Losses Through Credit Washing
Credit scores are not as reliable as they used to be — consumers can move negative information from their reports, and some entities have stopped reporting debt. The IRS, in particular, no longer reports tax debt to the credit bureaus. Some people also purposefully try to manipulate their credit reports, creating “malicious identities” that are not based on their real credit activities. They convince the credit bureaus that they have been the victim of fraud, and by doing so, they get the credit bureaus to remove negative claims on their credit reports.
As a result of these inaccuracies, financial institutions have been experiencing credit defaults that are unusual based on the credit scores of the account holders. Mitigating this risk requires credit departments to invest in more anti-fraud solutions, and at the same time, lenders may want to explore the use of other metrics while assessing the creditworthiness of applicants.
3. Misrepresenting Income on Loan Applications
This is another type of fraud that is often perpetuated by consumers and not criminals. Most consumers don’t realize that mistating their income on a credit application is highly illegal.
They often feel comfortable putting in an aspirational number, rather than their actual income, and they seem to think this practice is not much different than buying a pair of pants in a smaller size. Just as they “know” they’re going to lose weight, they “know” their income should be higher. In one situation, they’re lying to themselves, and in the other, they’re lying to a lender.
An analysis of 1.2 million loan applications indicated that a third of applicants overstated their income by 15% or more. This common deception slips through the cracks because lenders don’t have time to manually verify every piece of data on a loan application, and consumers are confident that their details won’t be double checked.
To reduce this risk, lenders should look into tools that scan credit applications for signs of potential fraud and flag suspicious applications for manual review. For instance, a discrepancy between the application’s job title and their wages compared to the average wages in their industry may cause the system to flag the application for review.
4. Downloading Easily Available Fraud Manuals
Manuals like “The Fraud Bible” are easy to find all over the internet, and they attract the attention of both seasoned criminals and regular consumers desperate for a little extra cash.
These digital downloads contain extremely detailed instructions on how to commit a range of fraud including hacking websites, using fraudulent cards, cashing out bank account codes, creating fake IDs and more. They often describe a known fraud hole, encouraging multiple bad actors to take advantage of the same vulnerability.
When fraud is such a preventlant part of pop culture, consumers often start to think that it’s not that bad. They think they’re not hurting anyone by ordering some groceries on Amazon with a stolen card number or using a fake ID to get free internet downloads. When ethics get muddled like this, the risk of fraud increases.
For example, this trend is already well underway in Nigeria where many scam artists are seen as savvy role models. Rather than viewing their behavior as wrong, many young people think of these criminals as modern day Robin Hoods, outsmarting Americans and using their funds to pay for college, start businesses, or pay for basic living expenses. When fraud becomes socially acceptable, it becomes a bigger risk.
5. Getting Involved in Wire Fraud
Wire fraud is continuing to increase in severity, and this type of fraud often involves consumers who don’t understand that they are helping criminals to commit fraud. The traditional wire fraud involves a scam artist asking a consumer to cash a check and send them the change.
To convince the “mule” that the transaction is legitimate, scam artists use a range of techniques — they may spin a lie saying that they are a foreign prince in need of cash who only has access to a single money order but no bank account, and in exchange for the consumer’s help, they’ll give them a cut of the check.
In other cases, they may buy an item from the mule but pay with a cashier’s check over the amount. In all of these cases, the scam artist has the mule wire them funds. Eventually, the victim realizes the money order or cashier’s check was fraudulent and they’ve lost the money they have wired.
Recently, wire scams are taking a new form focused on the real estate market. Scam artists intercept emails between buyers and mortgage brokers, and they convince buyers to wire the funds for their new houses to them. The documents appear to come from the mortgage company, and they look legitimate so the buyers often don’t hesitate to send the wire.
Contact SQN for Help With Fraud Detection and Prevention
The fraud landscape is constantly evolving, and if you want to protect your financial institution, you need dynamic fraud detection and prevention tools that can spot the tiniest signs of fraud. This includes fraud that involves consumers who don’t realize they’re committed or helping to commit crimes.
To learn more about how our fraud prevention solutions can help your financial institution, contact us today.