Search

Brian Pennington

A blog about Cyber Security & Compliance

Tag

Mortgage fraud

2012: “A year of Identity & Fraud” a review by Experian

Experian, a global information services company has posted two summaries of its research and blogs for 2012. I have taken the information that relates to Identity theft and fraud and consolidated it into one post.

In March, Experian revealed its latest research which estimated £1.02 billion worth of online shopping transactions were abandoned the previous year by UK consumers frustrated by old and inefficient identity measures. One in five of these abandoned transactions were not taken elsewhere as individuals cancelled their shopping attempt altogether, resulting in £214 million worth of net lost revenue for UK retailers.

The study, which was conducted for Experian by the International Fraud Prevention Research Centre and included survey data as well as insights from online retailers and the Office of National Statistics, revealed that 44% of UK shoppers had abandoned at least one online shopping transaction in the last year having become frustrated with the length and complexity of certain older forms of identity verification.

Older forms of online identity verification, typically complex, standalone systems drawing on single sources of information to corroborate identity information, are unable to validate as many individuals electronically as modern services. As a result, genuine customers might be forced to call a contact centre, submit physical documents through the post or visit the store or branch to confirm identity. Alternatively, the organisation might choose to accept a lower level of proof, and risk higher levels of fraud, in order to minimise customer inconvenience.

In April, Experian revealed that fraudulent applications for mortgages increased by 8% in the previous year. This was the fifth year in a row in which the rate of mortgage fraud has increased. 34 in every 10,000 applications for mortgages were found to be fraudulent in 2011, compared to just 15 in every 10,000 in 2006.

The overall rate of fraud at point of application across the UK’s financial services sector increased by 4% in 2011, to just over 17 in every 10,000 applications. In addition to record mortgage fraud figures, this overall increase was also driven by growth in insurance and current account fraud. 93% of attempted mortgage fraud in 2011 was down to individuals misrepresenting their personal information on applications. Typically these first party frauds involved falsifying employment status or financial information, and most commonly attempting to hide an adverse credit history.

Experian’s demographic insight revealed that Mosaic groups Terraced Melting Pot (young, poorly educated individuals living in small towns) and Suburban Mindsets (predominantly middle aged, middle and skilled working class individuals) were both responsible for around 15% of first party mortgage fraud cases in 2011. The young, well educated professionals of the Liberal Opinions were also prone to attempting first party mortgage fraud, being responsible for 13% of cases.

Nick Mothershaw, UK&I director of identity & fraud at Experian, comments: “About 70 per cent of financial services application fraud in the UK fraud is down to first parties misrepresenting their circumstances, and the products such as mortgages and insurance that have seen fraud soar over the last year have a significant first party fraud element to them. This kind of fraud tends to originate from financially stressed segments of society.”

  • Insurance fraud. Insurance fraud rates reached 11 in every 10,000 applications and claims in 2011, an increase of 23% over the last year. 89% of insurance fraud was first-party led with the Terraced Melting Pot, Suburban Mindsets and Liberal Opinions demographics responsible for the most instances. Combined they accounted for 43% of cases.
  • Current accounts. The rate of current account fraud increased to 36 frauds in every 10,000 applications in 2011, up from 23 in every 10,000 in 2010. 60% of current account fraud in 2011 was committed by first-parties, almost a quarter (23%) of which was down to the Terraced Melting Pot demographic. The remaining 40% of current account fraud attempts were down to third-party identity fraudsters seeking to open accounts as a springboard to obtain other, more lucrative credit products, or for money laundering purposes.
  • Automotive and credit card fraud rates fall. Not all financial products saw fraud rates increase in 2011. Credit card fraud continued to fall, from 19 in every 10,000 applications in 2010 to 12 in every 10,000 in 2011. The rate at which fraudsters target new credit cards is almost a quarter of the level recorded in 2006, when 45 in every 10,000 applications were fraudulent.  Automotive finance providers have also seen fraud rates fall. 23 in every 10,000 applications were found to be fraudulent in 2011, down from 38 in every 10,000 during 2010. 85% of these frauds were first party.

In May, Experian revealed that Slough had overtaken London to become the identity fraud capital of the UK. The Berkshire town recorded 25 identity fraud attempts for every 10,000 households, with residents targeted at around four times the UK national average (seven households in every 10,000). Residents of London, Gravesend, Birmingham, Luton, Manchester and Leicester were also targeted at twice the national average rate. London as a whole experienced 22 attempts for every 10,000 households, although attempts were not spread evenly across the capital.

Substantial hotspots for identity fraud activity were found in and around London’s Olympic neighbourhoods. Financial service providers detected 78 incidents for every 10,000 households in East Ham, as residents were targeted at more than 11 times the national rate. Woolwich and Stratford also experienced significant identity fraud activity, recording 46 and 43 identity fraud attempts respectively for every 10,000 households.

Whilst the instances of fraud across all financial products remained at a constant level between 2010 and 2011 (six in every 10,000 applications were found to be fraudulent), the data shows that there was a surge in identity theft via current accounts and mortgages during this period, with rates doubling (from six to 14 in every 10,000 applications) and quadrupling (from one to four in every 10,000) respectively.

Identity fraud attempts on credit cards fell from 17 to four in every 10,000 applications.

Fraudsters turn their attention away from the wealthy.

  • For the first time, young people renting small flats from local councils or housing associations represent the demographic most likely to be targeted by identity fraudsters. This group, known in Experian’s Mosaic classification as Upper Floor Living, saw its identity fraud risk score increase by 47% to 256 in 2011. Its constituents are two-and-a-half times more likely than the average UK resident to be targeted.
  • Almost as high on the identity fraud danger list are the Terraced Melting Pot (risk score 242), a group of mostly young people with few qualifications that who work in relatively menial, routine occupations, and live close to the centres of small towns or, in London, in areas developed prior to 1914. The Terraced Melting Pot saw its risk score increase by 75% in 2011.
  • Previously, the wealthy Alpha Territory demographic – representing the wealthiest sections of society living in fashionable London neighbourhoods – were most likely to be targeted. The risk score for this group halved in 2011 (from 301 in 2010 to 149) as fraudsters turned their attentions to younger and less affluent sections of society.

In June, Experian revealed that the financial services industry saw a 16% quarter-on-quarter jump in fraud rates in the period January to March 2012, driven primarily by a significant surge in current account fraud. 19 in every 10,000 applications for financial services were found to be fraudulent in the first three months of 2012, up from 16 in the last quarter in 2011. 44 in every 10,000 current account applications were detected as being fraudulent during the first quarter of 2012, 23% higher than Q4 2011.

The current account extended its position as the most targeted financial product, recording the busiest period for current account fraud ever recorded by Experian. Experian’s data shows that the majority (62%) of current account fraud in 2011 was committed by first-party perpetrators, which typically involves an individual painting a knowingly false portrait of their personal circumstances to obtain services to which they are not entitled. 38% of current account frauds were due to individuals attempting to hide adverse credit histories when opening current accounts or applying for overdrafts.

A further 39% of current account fraud involved product or payment abuse, which included people knowingly attempting to make payments with insufficient funds in their accounts. Attempted insurance fraud increased by 37% quarter-on-quarter, to reach its highest point since late 2009. 13 in every 10,000 applications and claims were detected as being fraudulent during Q1, up from 10 in Q4 2011. 58% of insurance fraud involved some form of product abuse, most significantly the provision of false payment information.

A 56% increase in identity fraud attempts pushed credit card fraud up from 10 cases in every 10,000 applications in the final three months of 2011 to 14 in the first quarter of 2012. Attempted identity frauds on cards leapt from five to eight in every 10,000 applications over the same period.

Nick Mothershaw, UK director of identity & fraud services at Experian, comments: “Experian’s data shows further growth in current account fraud during the first quarter of 2012, mostly emanating from individuals providing false information attempting to open new accounts or obtain overdrafts or making payments they knowingly couldn’t afford. The threat of identity fraudsters seeking to open accounts in the names of unsuspecting third parties, for money laundering or as a springboard to attempt fraud on more lucrative credit products, also remains.  Credit cards have seen a resurgence in identity fraud, while a growing number of financially stressed individuals consider misrepresenting their personal or payment information when applying for insurance, contributing to a significant fraud upswing in the first quarter of 2012.” 

  • Automotive finance. Fraud attempts in the automotive finance sector have declined significantly, down 34% on the previous quarter. There were 18 attempted frauds in every 10,000 applications in the first quarter of 2012, the majority of which were individuals attempting to hide an adverse credit history when applying for automotive finance.
  • Loans. The number of fraudulent loan applications has continued to decrease, reaching the lowest point ever recorded by Experian. Four in every 10,000 applications were discovered to be fraudulent in Q1 2012, 38% lower than the previous quarter. Attempting to hide an adverse credit history continues to be the preferred modus operandi in more than half of attempted loan fraud.
  • Mortgages. Attempted mortgage fraud fell by 5% quarter-on-quarter, with 35 in every 10,000 applications uncovered as fraudulent during the first three months of 2012. Attempting to hide an adverse credit history, misrepresenting employment status and falsifying financial information were the most commonly used tactics employed by mortgage fraudsters during Q1.
  • Savings accounts. Savings account fraud rates were 18% lower in the first quarter of this year than the preceding three months. 12 in every 10,000 applications were found to be fraudulent, with identity fraudsters responsible for more than 80% of cases.

In July, it was reported that fraudsters had traded 12 million pieces of personal information online in 2012, representing a threefold increase on corresponding figures for 2010. Experian data indicated that consumers had an average of 26 separate online logins, but just five different passwords across them all.

Experian advised people to change their passwords on a regular basis and try to make them more complex to keep fraudsters from cracking them.

The full story can be found here.

In August, a special investigation revealed that fraudsters were stealing identities in order to take out multiple mobile phone contracts and walk away with valuable handsets. One man returned from a holiday to discover fraudsters had taken out nine contracts in his name.

Experian said around 200 victims were contacting the company each month for help to restore credit histories that had been damaged by the “mobile communications fraud”.

George Hopkin’s original posts can be found here, part one and part two.

.

UK Fraud Report 2012

In April Experian released their 2012 review of Fraud in the UK. There are some interesting findings and a summary of the 28 page document is below.

Executive Summary of the report

  • Annual fraud losses across the UK are now estimated to now top £70 billion
  • Of this around £3.5 billion is in financial services
  • A year-on-year rise of 4% in application fraud rates across all financial services products has been noted – reflecting a trend traditionally seen during downturns
  • Mortgage fraud rose by 8% in 2011, highlighting the level of exaggerated affordability and adverse credit some customers are now trying to hide
  • Insurance fraud has risen by 23%
  • The most significant year-on-year increase in fraud was seen around current accounts, which were up by more than half
  • First party fraud has continued to rise, while third party identity fraud has declined
  • A seasonal uptick in first-party fraud was also noted with significant H2 rises during the run up to Christmas
  • Traditional blue collar and welfare-dependent groups were among the most likely to attempt first-party fraud, as well as now becoming victims of fraud
  • The switch sees fraud moving closer to home and suggests an ‘anyone goes’ approach by fraudsters willing to aggressively pursue more lower-yield opportunities
  • Card fraud and automotive fraud both saw 40% year-on-year falls, suggesting identity capabilities and verification technology are improving
  • Elsewhere, fraud on savings and loan products has seen modest falls within the past year, also reflecting improving industry-wide good practice

Fraud in the UK is now at a record level.   During the past 12 months, Experian estimates it went up by at least 4% and is an industry with an annual turnover that is now estimated to cost the country more than £70 billion.

Mortgage Fraud Rates

  • 2006, around 15 frauds per 10,000 applications were being detected.
  • 2008 the figure stood at around 26 per 10,000.
  • 2011 34 per 10,000 mortgage applications were found to be fraudulent.

Insurance Fraud Rates

At present around 11 frauds in every 10,000 policy application and claims are fraudulent.

The Association of British Insurers is detecting more fraud than ever with more than 2,500 fraudulent claims worth £18 million every week.

The most common frauds

  • Home insurance with 66,000 bogus or exaggerated claims detected
  • Dishonest motor insurance claims with 40,000 frauds uncovered

Of these, motor frauds were by far the most costly, totalling £466 million. As a result, insurance fraud is estimated to now cost £2.1 billion per year.

Current Account Fraud Rates

Within the past 12 months, the rate of current account fraud jumped from more than 20 per 10,000 applications, to around 36 in every 10,000 applications. Around 60% of current account fraud was committed by first-parties, while the remaining 40% was committed by third-party identity fraudsters.

Automotive Fraud Rates

Fraud rates have fallen significantly in automotive finance, dropping from nearly 40 frauds per 10,000 applications at the end of 2010, to around 23 per 10,000 by the end of 2011. The vast majority (85%) of successful frauds were committed by first-parties, possibly reflecting an increasing availability and prevalence towards dealer credit.

Card Fraud Rates

Experian found that during the past two years the overall rate of credit card fraud has also dropped away.

There has been a sizeable swing from third to first-party frauds during 2011. After a stable first three quarters to 2010, the proportion of first party fraud began to rise rapidly, peaking at 70% in Q3 2011. Although the economy is likely to be a factor, with hidden adverse credit and inaccurate salary as the most common reasons given, this trend in behaviour is also partly driven by some lenders’ changes to reporting methodology.

Savings Accounts Fraud Rates

The fall in fraud rates has coincided with a decrease in the average time after application when a fraud was noted, with 75% of fraud being marked within one month of the application.

Towards the end of 2011, lenders began to note more first-party frauds, citing previous payment fraud. The victims are largely the highest earners as they continue to clearly represent the richest pickings for fraudsters.

Loans Fraud Rates

Loans show a slowly decreasing fraud rate, down around 10% on the year but remaining at around seven frauds per 10,000 applications. More than three out of four (76%) loans were marked as fraud within one month in H2 2011, down slightly from 83% in H1 2010.

First Party Fraud – where it occurs

London continues to be the centre of UK fraud, with acute problems in the inner-city boroughs of Tower Hamlets, East Ham and Woolwich. There also London continues to be problem in and around south east London.

The recent trend for a broad westward migration along the Thames Valley and out into the Home Counties has also continued. This is typified by the commuter towns of Reading, Luton and Croydon, which all recorded above average levels of fraud.

Northern Ireland continues to be a disproportionately high-risk region.

Elsewhere in the UK, provincial inner cities including Birmingham, Manchester, Leeds, Sheffield, Coventry, Leicester, Derby, as well as a triangle of Fenland towns around Peterborough, all showed an uptick in first-party fraud.

Third Party Fraud – where it occurs

The geographic spread of third-party fraud is broadly in line with first-party fraud, although there are far higher concentrations within the London boroughs, inside the M25’s commuter belt and with notable spikes along the Thames Estuary’s gateway towns.   During the past few years there has been a gradual migration outside of Greater London, although more recently the numbers suggest a contraction back into London – particularly around East London.

The fraudsters pattern of behaviour by numbers

  1. The UK’s leading ecommerce businesses say their peak fraud period is from 9pm to 12 midnight. Nearly three out of 10 (28%) companies surveyed cited this period in which most fraudulent orders were put through their site
  2. With thousands of websites to defraud and thousands of institutions offering credit, it’s no great loss to fraudsters when they do get beaten by the embedded defences companies put in place. Fraudsters simply move onto the next site in the list. According to a survey of fraud managers at internet retail operations, seven out of 10 (70%) of retailers don’t report fraud to the police
  3. Fraudsters favour a mid-range attempt that doesn’t arouse suspicion or warrant great scrutiny. Fraud managers have indicated that nearly half (43%) of attempted fraudulent transactions were in the £250 to £500 range, while less than a third (29%) were in the £500-plus bracket
  4. Despite the obvious advantages offered by the online retail environment, many fraudsters still prefer to use a third-party to distribute stolen property, often favouring the convenience and ease of a speedy cash sale to a member within their broadly co-operative fraud networks
  5. Fraud managers have their own online forums to discuss, share information, tips and fraud alerts to work together to beat the fraudster, so it’s unsurprising to find that fraudsters also have their own forums as well. Numerous ‘carding sites’ exist on the web where sets of card numbers, names, addresses and other information any web-literate person can purchase and take home, before attempting their own Card-Not-Present scam.

Download the full copy of the Experian 2012 Fraud Report here, registration is required.

You may also want to read RSA’s April Online Fraud Report 2012

.

Blog at WordPress.com.

Up ↑

%d bloggers like this: