The AP recently released an article that describes the latest technique criminals are using to slip in through the back door of the credit application process. This technique targets fresh or clean Social Security Numbers (SSN) that belong to children or people who have been in prison for most of their life – both life situations mean that person’s credit record is essentially empty. Criminals will then 'piggyback' new information onto the victim's SSN.
This is a twist from an earlier technique of using a dead person’s SSN, which has been has been closed down by Social Security Administration’s Death Index. Maybe we need a SSN Birth Date Index to determine the age of the person the SSN is assigned to? Actually the Social Security Administration has a Consent Based Social Security Number Verification Service (CBSV); however it costs $5 per request with $5,000 set up fee and requires written consent of the SSN holder. The service appears to be geared towards employers. This doesn’t exactly fit the bill for immediate credit offers that many customers and financial institutions are used to in our always on, always online, instant gratification society.
No credit history should be a red flag, right?
There are legitimate consumers embarking on their first steps in the credit world. There are people who are in difficult situations who trick the system and intend to pay back the loan, but more often than not, it is an organized criminal group exploiting this hole in the financial firewall. Smart criminals don’t go for the gold ring on the first use of an identity. They take their time and build up a financial track record or credit footprint. Open a checking account, then a credit card and then an unsecured loan or auto loan. The criminals will make payments for anywhere from 5 months to 5 years, waiting for the financial institutions to trust them and reward them with higher limits, more products and longer grace periods. Then the criminals will inflate the limits with bad checks and pull it all out. More than likely, they have several identities stoking in the fire at each of the financial institutions the organized criminal ring is targeting.
Every chief risk officer should be concerned about this type of fraud. It is the intersection of fraud and credit risk. The criminals target all parts of a financial institution. When the fraud is considered bad debt and viewed in single silo, the true extent of the crime is missed. It rolls into bad debt in several parts of the financial institution. The criminal then plants and cultivates another account with another identity in the forest. An enterprise view of risk is required to put the pieces together.
Was this customer a bad credit risk or a good customer who hit hard times?
Use analytics to help you decide - pre-book, before the application is approved and post-book, during the customer life-cycle.
Application fraud models identify fraudulent applications and hook into third party data sources to validate information before the loan is booked. This reduces the amount of manual review required as well as improves identification of data inconsistencies that indicate risk with credit applications. Real time transactional fraud models detect risky behavior on active accounts already on a financial institution’s loan book.
Fraud consultants who have experience managing this type of fraud risk in global financial institutions bring a fresh set of eyes to look at the problem. These industry experts are available to assess the level of fraud a credit grantor has on its books today and strategies to correctly identify the fraudsters by their transactional behavior over time before they bust out.
Best in class fraud management analytics, tools and processes reduce losses, lower reserve requirements and move criminals to softer targets.