As more people access the Internet and more websites emerge, hackers have more opportunities.
Loan application fraud has been one of the most common scams over time.
This fraud, which consists of stealing personal information from people and using it to obtain a loan, has already had devastating consequences for organizations, businesses and individuals.
As a result, many businesses are already battening down the hatches and looking for ways to protect themselves and their customers.
Keep reading if you find yourself in this situation. We’ll go over the top seven ways to prevent loan application fraud in this article.
Understanding credit fraud: what is it?
Loan fraud is defined as when someone uses your identity to obtain a loan without your permission.
A fraudulent act is sometimes committed by the person or organization offering the loan (the creditor). Sometimes it is the borrower (the debtor) who acts in bad faith.
Mortgage fraud, payday fraud, and loan fraud are all examples of loan fraud. In each of them, someone will be left out, while the counterpart will take advantage and disappear.
5 types of loan fraud
Several types of loan fraud can occur. Some of the most common are listed below.
Personal Loan Fraud
The most common and recurring type of loan fraud is personal fraud. It happens when someone takes out a loan while lying on their application. They could, for example, lie about their income or their ability to repay the loan.
Third Party Loan Fraud
Second-party fraud is the same as first-party fraud, except that the fraudster “impersonates” an accomplice. The accomplice may be a family member or friend who may or may not know about the borrowing system.
Third Party Loan Fraud
Third-party loan fraud occurs when someone borrows money under the guise of another person. In this situation, an individual (or a group of individuals) provides fraudulent credentials to a creditor in order to borrow money.
Loan Scams and Debt Collections
Debt collection programs aim to attack debtors. These deceptive techniques are used to trick customers into paying a fee to access a loan or to scare borrowers into repaying a loan to the wrong company.
Mortgage lenders, who provide loans for the purchase of property, are also vulnerable to fraud. Fraudsters may try to outsmart the mortgage system in order to get a better loan or gain access to a property.
Borrowers who commit real estate fraud are often motivated by a desire to keep their current property or acquire a new one. These borrowers think they are unlikely to be accepted for a loan if they provide honest information, so they falsify or omit important facts such as employment and income, debt and credit or value of a property in order to increase their chances of acceptance and even to acquire better loan conditions.
Why you need to prevent loan fraud
Loan fraud has a wide range of negative implications, which are not limited to banks, governments and lenders.
A thief can, at the very least, take out many payday loans on your behalf. In the worst-case scenario, a fraudster can create a real home, business, or auto loan in your name that you would be required to repay.
You may be liable for money withdrawn on your behalf if you are a victim of credit fraud. If you don’t repay the loan, you could face a significant penalty on your credit score as well as criminal prosecution.
Loan fraud can sometimes be difficult to detect. Especially if the scammer is based in another state or gained access to your mail through a change of address system.
Finally, if an identity thief has used your stolen identity to obtain a loan, they may attempt other types of fraud with it.
Fortunately, the majority of victims can prove that the loan was acquired by an identity thief. However, going through the procedure is still a negative experience that can have long-term consequences on your credit.
7 steps to prevent loan application fraud
Today, thanks to advances in technology, there are several methods to prevent loan application fraud. Some of the most important and relevant are listed here.
Identity verification and facial recognition
Implementing secure technology solutions, such as identity verification and facial recognition, is one of the first steps in loan fraud prevention.
Identity verification is a type of authentication that compares a person’s claimed identification to the data that verifies it. Birth certificates, social security cards, driver’s licenses and other papers can all serve as providers of this objective reality.
In addition to verifying paperwork, which may have been stolen, you can also deploy a facial recognition system to provide even more secure loan fraud prevention.
Facial recognition is a technological method of recognizing a human face.
It is a biometric identification approach that uses a person’s facial pattern and biometric data to authenticate their identity.
Validation of identity data
Identity data validation is the process of verifying that an individual’s personal information, such as name, address, phone number, and email address, exists in the real world.
Checking databases such as mailing address files, phone records, or even basic credit data can help you do this.
A digital fingerprint, also known as a digital shadow or an electronic fingerprint, is the data trail you leave when you use the internet. This includes the websites you visit, the emails you send, and the online forms you fill out. A person’s internet actions and gadgets can be tracked via a digital fingerprint.
Since these behaviors and habits are difficult to imitate, using digital fingerprints for verification purposes is a good strategy to avoid fraud.
Therefore, analyzing a user’s digital fingerprint may lead to the discovery of fraud. For example, if a single IP address is used to create several new accounts in a short time, you may suspect fraud.
Bank account verification
The process of determining if funds are being transferred between real bank accounts is called bank account verification.
This technique helps your business verify submitted bank account information and confirm that it belongs to the rightful owner. Finally, you can be sure that the funds are coming from the correct source.
Knowledge-Based Authentication, abbreviated KBA, is an authentication method based on a series of knowledge questions used to validate a person’s identity to prevent unwanted access to a location or, more generally these days, to an account.
KBA authentication is classified into two types: static and dynamic.
Static knowledge-based authentication, one of the most widely used security approaches, is sometimes referred to as “shared secrets” or “shared secret questions”. When creating an account, the user selects the KBA static question.
Therefore, the question and answer are saved for future use when identity verification is needed.
Unlike static KBA, which requires the user to build a security question and provide the answer when creating an account, dynamic KBA does not require the user to construct a security question and provide the answer. response when creating an account.
This implies that questions are created in real time using data linked to an identification number. “Select the last digits of your social security number”, for example.
Phone and social media authentication
Using social media accounts for authentication is becoming increasingly popular. This type of authentication allows users to access the Internet using their current social media accounts, such as Facebook or Twitter, without having to provide additional credentials.
This way, you can have greater confidence in the truthfulness of users and the validity of their actions.
In terms of social media, several websites use phone authentication, which seems to be more secure than social media authentication.
Since it’s impossible to fake phone numbers, you can be sure that the user is genuine.
Two-factor authentication is one of the most popular verification methods on the web.
It improves security by requiring two verification methods (also known as authentication factors) to prove your identity. A security factor can include something you know – like your email address and password – as well as something you have – like a smartphone app – to approve authentication requests.
This concludes our blog post on the top seven steps to prevent loan application fraud.
As discussed throughout, these types of financial crimes can have serious financial and legal consequences for your business, organization, and users.
By preventing it now, you will avoid these negative repercussions. As we have already noted, there are several ways to keep your users safe. You can select the ones that best suit your organization.
Thank you for taking the time to read this blog post. I hope you found it informative and relevant.