Case Studies

Credit application fraud

by Mark Rowe

A significant rise in detected and prevented fraud attempts in the first half of 2013 has been reported by a credit checking company. Fraudulent applications made as a result of identity theft have almost doubled in 2013 but that these attempts have been thwarted through better fraud prevention systems, it is claimed.

According to Experian’s latest Fraud Index, fraudulent applications for credit cards saw the largest rise in 2013 with 14 in every 10,000 applications in H1 2012 rising to 25 in every 10,000 in H1 2013 (January to June 2013). Fraud attempts have also risen across insurance, which reached peak levels in 2013, as well as savings, loans and automotive finance.

The analysis also shows that identity theft now accounts for 46 per cent of all fraud attempts, compared with 27 per cent last year. According to the credit checkers this is showing that identity theft is a significant and rising threat and that lenders and consumers need to remain vigilant. Although there has been a significant increase in attempted fraud and especially identity theft, investment in better fraud prevention by the UK’s financial services sector is paying off it is claimed with financial institutions uncovering greater numbers of fraudulent cases at point of application in the first six months of this year compared to the same period last year.

Insurance fraud
In the insurance market, the number of insurance applications found to be fraudulent reached peak levels in H1 2013 with 14 false claims in every 10,000 applications, compared with 11 in every 10,000 in H1 2012.

Mortgage fraud
While instances of mortgage fraud are falling, this sector still sees the highest rate of fraudulent applications across financial services. In H1 2013, 31 in every 10,000 mortgage applications were found to be fraudulent compared with 37 in every 10,000 in the same period in 2012. While attempts at hiding adverse credit (23 per cent) was still the most common type of fraudulent behaviour, the misuse of mortgaged property and hidden buy-to-let were two of the areas to see a biggest rise compared to the previous year.

Automotive finance fraud
The automotive finance industry also saw an increase in the number of known fraud cases in H1 2013. Some 21 in every 10,000 applications were discovered to be fraudulent, up from 17 in every 10,000 applications in the corresponding period last year. Attempts at hiding adverse credit (62 per cent) was still the most common method when applying for automotive finance. However, fronting – where a lower-risk, usually older, driver insures a vehicle in their name, although the main driver is higher risk – saw the biggest increase, of 7 per cent, year on year.

Savings account fraud
Known cases of savings account fraud have risen from 13 in every 10,000 applications in H1 2012 to 17 in every 10,000 applications in H1 2013. The vast majority of fraud was ID theft, conducted by third party individuals, often perpetrated for money laundering.

Loan fraud
Fraudulent loan applications continue to account for the fewest number of fraud cases across financial services with six in every 10,000 applications discovered to be fraudulent in H1 2013. Attempting to hide an adverse credit history continues to be the preferred method in one third of attempted loan fraud cases.

Current account fraud
Current account fraud was the only other area to see a marked fall in the number of fraud cases found with 20 in every 10,000 applications received by financial institutions detected to be fraudulent in H1 2013 versus 44 in every 10,000 in H1 2012.

Nick Mothershaw, UK and Ireland director of identity and fraud at Experian, says: “The financial services industry is making progress in combatting fraud, and it is encouraging that more fraud is being detected and prevented than ever before. However we should not be complacent. Although better systems are in place both lenders and consumers need to remain constantly vigilant, especially against the rising threat of identity theft. “Our analysis also suggests that fraud is increasing in major areas such as credit cards, insurance, savings accounts and automotive finance. Organisations can take simple steps to mitigate risk so that they crackdown on individuals misrepresenting their personal information while also preventing third-party identity fraudsters seeking to open accounts as a springboard for other, more lucrative credit products. At the same time, consumers need to keep a close eye on their personal credit information and, where possible, take every practicable step to avoid becoming a victim to identity theft.”

Visit experian.com

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