Loan Fraud

It takes skill to strike a balance between customer convenience and security, particularly in a cutthroat, high-value industry. For instance, potential clients may apply for loans easily when banks and credit card firms provide online loan applications. However, they also make it easy for hackers and identity thieves. 

Between the first quarter of 2021 and the first quarter of 2022, the National Mortgage Application Fraud Risk Index in 2021 rose by 15%. The fourth quarter of 2021 saw a dramatic increase in credit card fraud as well. Everyone is impacted by fraud, including customers and the institutions who accept applications. The amount lost may vary, but it increases customer expenses and causes significant financial losses for financial institutions. As more financial institutions continue to offer services through apps, the mobile market is the main distribution method for fraudsters.

What is Loan Fraud?

When a criminal fraudulently obtains a loan using your personal information, this is known as loan fraud. 

A fraudster may, for instance, establish a mortgage in your name (or obtain a reverse mortgage and steal your home equity) and then leave you to pay it off. 

It is thought of as a sort of identity theft because loan fraud necessitates the stealing and exploitation of your personal information. Loan or lease fraud ranked as the fourth most frequent identity theft in 2020.

Your personal information may be obtained by scammers in a variety of ways. To get your personally identifiable information (PII), they can use phishing schemes, or they might persuade you to download malware that allows them access to your device. However, given the frequency of data breaches in recent years, purchasing your account credentials on the Dark Web is the simplest alternative.

During the loaning procedure, many lending organisations just ask for a little quantity of information. This implies that to obtain a loan, identity thieves just require a few bits of information, such as your Social Security number (SSN) or bank account number. 

Is Loan Fraud Really That Bad?

Yes. Additionally, it affects more than just banks, governments, and lending organisations. 

A thief may, at the very least, apply for many payday loans in your name. The worst-case scenario involves a fraudster obtaining a real automobile, business, or house loan that you would be liable for repaying. 

You may be held liable for the funds withdrawn in your name if you’re the victim of loan fraud. If you don’t repay the loan, you might potentially face severe consequences for your credit score and perhaps face criminal charges. 

You could incur late payment fees on your credit report, for instance, if a fraudster obtains a loan in your name and never pays it back. Your FICO® Score is 35 percent based on your payment history.

Sometimes it might be challenging to find loan fraud. especially if the con artist is working out of another state or obtained access to your mail through a change-of-address scheme.

Last but not least, if an identity thief utilised your stolen identity to apply for a loan, they could be utilising it to perpetrate other frauds as well. 

Fortunately, most victims can demonstrate that a loan was obtained using their false name. However, going through the process is still a terrifying ordeal that might harm your credit in the long run.

How To Protect Yourself From Loan Fraud

Fraudsters are aware that loan fraud can go unnoticed for weeks, months, or even years, allowing them the opportunity to destroy your credit. It is always preferable to proactively safeguard yourself against the risk of financial fraud. 

You can take the following measures to guard yourself against loan fraud:

  • Stop using credit. By putting your credit on hold, you may prevent identity thieves from opening new accounts or taking out loans in your name. To obtain a credit freeze, get in touch with all three main credit bureaus. Alternately, lock and unlock your Experian credit file instantaneously by using IDcentral’s one-click credit lock. 
  • Find out how to spot phishing attacks. In emails and messages, cybercriminals may try to evoke a sense of urgency to persuade you to take immediate action and click on harmful links (for instance, by stating your bank account has been hijacked). Always take your time and look for scam warning signals, such as generic greetings, odd syntax, typos, and questionable links. 
  • Check your financial statements and credit reports frequently. Your financial accounts are virtually always the target of scammers. Investigate any accounts you don’t recognise or unexpected transactions on your bank statement since these might be indicators of identity theft. IDcentral, a service that protects against identity theft, can watch over your credit report and bank statements and notify you if there is any suspicious activity. 
  • Avoid saving your banking or credit card information with internet merchants. When checking out, many online retailers need you to create an account. But data leaks and hacking can happen in these stores. Use a “guest” account instead. Although it could take a little longer, you’ll be confident that your banking information is secure. 
  • Think about enrolling in identity theft protection. The best identity theft protection offered by IDcentral keeps an eye on your finances, internet accounts, and all of your most private personal information for indications of fraud. IDcentral can assist you in acting quickly if a fraudster tries to access your accounts or funds. 

What To Do if You’re the Victim of Loan Fraud

It’s possible that loan fraud affects you without your knowledge until after it has already occurred. But the sooner you spot the fraud, the sooner you can stop the con artists and safeguard your credit.

Any questionable behaviour or loans taken out in your name will be swiftly reported to you if you use a credit monitoring service. A decline in your credit score, phone calls from collection agencies, or receiving weird invoices for accounts you don’t recognise are the biggest caution signs in the absence of these.

What to do next if you believe you’ve been conned is as follows:

  1. Put your papers in order.Gather any evidence that you think may support your case, such as screenshots, emails, or interactions with the fraudster.
  2. Report identity theft to the FTC through serves as your official declaration of identity theft and can keep you from being held accountable for false debts.
  3. Send a police report to the local authorities.When you are aware of the identity thief or a financial institution demands a police complaint, you must take this action.
  4. Get in touch with any lenders, financial institutions, or governmental organisations that are affected (like the SBA).Inform them that you have complained, or approach them directly with the issue. For instance, you can get in touch with the SBA’s Office of Disaster Assistance if you have been charged for a fraudulent SBA or PPP loan.
  5. Set up a fraud alert or credit freeze.This makes it more difficult for con artists to apply for fresh loans in your name.
    Prevent identity theft from happening again.
  6. With credit monitoring, network and device security, and $1 million in coverage for admissible losses from identity theft, Aura safeguards your identity.

Fraud must be reported in order to aid in the prevention of new instances. ReportFraud.The best place to accomplish this is

Remember that the government views loan fraud as a severe matter.

Criminal penalties, millions in fines, and lengthy prison sentences — often up to 30 years — can be levied against those who commit loan fraud, bank fraud, and wire fraud.

Numerous regulatory organisations keep a close eye out for loan fraud schemes and penalise those responsible. include the Attorney General, the Office of the Inspector General, the FBI, and the Federal Trade Commission (FTC).

Online Loan Fraud Trends and Threats in 2023 and Beyond

Up to 2026, the market for digital loans is anticipated to expand at a CAGR of 11.9%. It has undergone a significant transformation over time as a result of the digital revolution, and SMBs have contributed to this growth by taking on enormous debt during the COVID-19 epidemic.

Here are a few things to watch out for in terms of loan fraud trends:

Synthetic ID Fraud Continues to Rise

A common technique for evading KYC checks when applying for a loan is to combine fraudulent information with stolen identification documents. 

It is the fastest-growing kind of fraud in the US, according to the Federal Reserve, and 20% of loan fraud losses are attributable to the up to 95% of synthetic IDs that are not detected by fraud protection systems.

The US, which mainly relies on static personally identifying information like social security numbers, has unique difficulties.

Fraudulent Business Loans Backed by the Government Will Persist

Similar to first-party fraud, business loan fraud involves a corporate applicant who presents false information. Following the influx of government emergency loans, this has grown to be an increasingly serious issue. 

According to estimates, the Paycheck Protection Programme in the US, which was intended to help SMBs during the pandemic crisis, may have helped 11.8 million scammers. That would represent 15% of all loans disbursed. 

The Financial Times claims that 5-10% of UK firms have missed payments of up to £5/$6.78 billion.

You need specialised KYB (know your business) technologies to validate company data, which can help you decide more wisely on partnerships or loans. 

Onboarding Digital Customers Must Change

Deepfakes, significant data breaches, hacking of biometrics… There is no shortage of contemporary methods available to fraudsters for evading KYC checks. Fraudsters may quickly acquire millions of IDs to test on challenger bank websites or utilise for payday loan applications thanks to the never-ending supply of stolen papers from data dumps.

Although video document verification and biometrics seem safer on paper, they are nonetheless regarded as heavy KYC, or high-friction, processes. Because of this, an increasing number of businesses that require speedy credit checks instead depend on digital footprint analysis.

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