Banks Should Beware of “Hidden Fraud”, Experts Say

FICO, a company that delivers predictive analytics solutions, and Equifax, a leader in information solutions, warn financial institutions that first-party fraud is an ever growing threat and that the effects of this phenomenon should not be ignored.

On the bright side of things, counterfeit card fraud dropped by 60% across Europe in the past couple of years, mainly because of the introduction of chip and PIN cards.

On the other hand, criminals are turning to other, less sophisticated schemes to help them gain profit. More precisely, they are trying to legally obtain credit under their own names and after they spend the credit limit, they disappear without a trace.

“First-party fraud blurs the line between fraud and bad debt, because it doesn’t involve counterfeit cards, stolen cards or false identities. Some borrowers will make a couple of payments early, and then stop altogether in a ‘hit-and-run’ scenario,” Neil Lewis, head of consumer products at Equifax.

“There are opportunists who sign up for loans with a bank where others have recently gotten away with first-party fraud, and there are ‘sleepers’ who make payments for months in order to fool a bank into relaxing its rules and granting more credit.

“Organized crime rings even recruit borrowers to take out credit that won’t be paid back, with the borrower getting a portion of the take.”

With the technological advancement becoming more integrated into anti-fraud mechanisms, crooks are focusing their attention on less complex methods of illegally earning money.

One of these methods refers to the use of a device inserted into the ATM’s card slot, which blocks the card. When the card becomes stuck, a “friendly bystander” tells the victim to enter the PIN once again. After seeing that nothing works, the victim goes to inform the bank and the bystander walks away with all the money he/she finds on the card.

FICO and Equifax have joined forces to improve consumer identification and fraud detection with the purpose of protecting the customers of UK financial institutions.

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