The cutthroat competition between modern-day lenders has resulted in chopping off of the loan application process in order to win more customers. Today, many financial lenders barely require a small amount of information to hand you over a quick payday or unsecured loan. This has eased the way of identity fraudsters who can obtain a loan, or buy a car or even open a business using your identity without much verification, thereby affecting your finances and impacting your credit score.
Fraudsters also use other identities when they do not have required the credit score for personal loan or business loans. As a lender, if you want to prevent or discourage the occurrence of account fraud, your strategy and fraud detection system should include a combination of identity verification procedures. In this post, CRIF explains 3 major types of loan frauds and the multiple ways in which they may occur in unsecured loans. CRIF is one of the 4 RBI recognized credit information companies in India providing credit information report.
1. Application Fraud
Perhaps the most common type of loan fraud is application fraud. It occurs when a potential borrower provides misleading information on a payday loan. Borrowers attempt to dupe lenders in a number of ways by presenting stolen or false information on their loan applications. Here are some of the most common examples of application fraud targeting unsecured personal lending institutions:
- Identity Theft – Here, the applicant steals someone identity and uses it to secure a loan. Unless a sound KYC is in place which involves PAN verification & Voter ID verification & Aadhar number verification and verification of other parameters, the fraudster can easily make his way out with money.
- Fake Bank Account – In this loan fraud, the only real victim is the lending institution as it involves a completely made-up identity and not a copy of any real person. The borrower uses the black market to acquire a fake name, birth certificate, and other personal documents to give the impression of a legitimate individual and set up a fake bank account.
- Fake Information – This involves misrepresenting one income or personal assets. Other fraudsters may include illegitimate personal references or employers. These types of fraud generally involve a co-conspirator who acts as the reference or employer on behalf of the fraudster.
2. Information Fraud
Here, breached or compromised information is used to gain access to bank accounts, loan applications, and other tools to defraud lending institutions. Here are the types:
- Web Scraping – Here, fraudsters scrape the internet, mostly social media platforms or websites where people register themselves, to gather individual information.
- Account Hacking – Hacking – A serious offense, fraudsters hack into an existing genuine bank account and apply for a loan through that account.
- Loan Phishing – Here, fraudsters send an email to unsuspecting individuals purporting to be their bank or other financial institution. Such emails are often detectable through a little vigilance.
- Dark Web – Fraudsters have become adept at searching the Dark Web, or DarkNet, to find the information they can use in identity theft, account hacking, application fraud, and other types of unsecured personal lending fraud.
3. Asset Fraud
Asset fraud happens when an individual steals cash or kind in the process of borrowing cash or kind. Some of the common ways this is done are listed below:
- Fake Bankruptcy – This fraud involves hiding assets or income and filing for bankruptcy seeking a loan to pay off debtors. This is done in order to protect certain assets under the bankruptcy law.
- P2P money transfer – This fraud may occur while transferring money online using banking or third-party apps. Unless the app is trustworthy and secure, there is always a risk of compromising critical information to hackers.
Loan fraud and financial fraud in general, is not only the responsibility of the individuals but also the lending institutions. Avail of the CRIF service to explore a host of a customized list of antifraud solutions for your organization.