Lending money inherently comes with risks. And it gets even riskier when fraudsters join the party.
This post will examine the most popular techniques used by scammers to defraud loans and, more importantly, will discuss how to defend your company against them.
Can Someone Use Your Identity To Take Out a Loan?
According to the Federal Trade Commission, there were 204,967 reports of loan fraud [*] in the United States in 2020 alone.
Everybody has to use credit or borrow money at some point in their lives. What steps can you take then to guard against con artists who aim to destroy your reputation in the financial world?
We’ll explain how loan fraud occurs, how to recognize it, and how to shield your loved ones from this grave risk in this guide.
What is Loan Fraud?
When someone uses your personal information to obtain a loan illegally, it is known as loan fraud.
For instance, a scammer may open a mortgage in your name, obtain a reverse mortgage, take advantage of the equity in your house, and then abandon you to pay it back.
Because loan fraud requires the theft and use of your personal information, it’s considered a type of identity theft. In 2020, loan or lease fraud was the fourth most common type of identity theft [*].
There are several ways for scammers to obtain your personal information. For the purpose of obtaining your personally identifiable information (PII), they might utilize phishing scams to trick you into downloading malware that grants them access to your device. However, given the volume of data breaches in recent years, purchasing your account details on the Dark Web is the simplest option.
During the loaning process, many lending organizations only need the barest minimum of data. This implies that all identity thieves need to obtain a loan is a few pieces of information, such as your bank account number or Social Security number (SSN). ✅.
Is Loan Fraud Really That Bad?
Yes. Furthermore, it affects more than just lending organizations, governments, and banks.
A thief might, at the very least, apply for several payday loans in your name. In the worst scenario, however, a con artist might establish a real loan for a house, business, or automobile that you will have to repay.
Should you fall prey to loan fraud, you may be accountable for any funds deducted from your account. If you don’t repay the loan, you might also face serious consequences for your credit report and possibly face criminal charges.
For instance, your credit score may be affected by late payment penalties if a con artist obtains a loan in your name and never repays it. Payment history accounts for 35% of your FICO® Score.
Loan fraud can sometimes be difficult to track. especially if the con artist is based in a different state or has gained access to your mail through a change-of-address scam.
Lastly, if an identity thief obtained a loan using your stolen identity, they may be using it for other fraudulent activities. Fortunately, most victims can demonstrate that the loan was taken out by an identity thief. However, going through the procedure is still a terrifying experience that could negatively impact your credit in the long run.
9 Types of Loan Fraud to Avoid
- Credit card fraud
- Car loan fraud
- Advance-fee loan scams
- Home loan (mortgage) fraud
- Business loan fraud
- COVID-19 Paycheck Protection Program (PPP) Fraud
- Payday loan fraud
- Student loan fraud
- Debt consolidation scam
Anywhere you borrow money or increase your credit, loan fraud is a possibility. From obtaining student loans to starting businesses, credit cards, and mortgages
Credit Card Fraud
One of the most prevalent forms of loan fraud that identity thieves perpetrate is credit card fraud.
A thief applies for a credit card in your name or engages in any number of other credit card scams after obtaining your personal information. After it’s approved, the con artist may accumulate debt and demand repayment of the loan from you. Credit card fraud can happen in a number of ways:
- Stolen or lost cards. Having too many credit cards increases the risk of identity theft since it gives criminals more chances to obtain your account numbers. Mail fraud and stolen wallets are two more common ways scammers obtain your credit card information.
- Account takeovers. Scammers can modify PINs, passwords, and mailing addresses using your compromised personal information to get in touch with your card issuer and gain complete access to your credit report.
- Cloned cards. When you use “skimmers,” which are devices that fit over card readers and steal your account information, they are installed by some scammers.
- Card-not-present theft. For as little as $150, identity thieves can purchase credit card numbers from the Dark Web and use them to make thousands of dollars in online purchases.
The good news is that fraud is well-known to credit card companies. Almost every provider offers some sort of fraud protection. Furthermore, federal law states that even if your card is stolen, you might only be held accountable for up to $50 if you report it lost or stolen within two days of becoming aware of it.
Watch out for any unusual activity on your accounts and if there’s a sudden drop in your credit score.
Pro tip: To help prevent credit card fraud, sign up for fraud alerts and credit monitoring.
Car Loan Fraud
The fundamental concepts of credit card identity theft and car loan fraud are the same. However, the thief applies for a car loan rather than a credit card.
Since auto loans are frequently larger than credit card loans, car loan fraud can be especially harmful. Regrettably, fraudsters can now more easily use your identity to apply for loans thanks to the increase in online car shopping.
You might be the victim of auto loan fraud if you begin to receive messages about a loan you never applied for or if a dealership you’ve never heard of contacts you.
Advance-Fee Loan Scams
An advance-fee loan scam only involves the promise of a loan, as opposed to identity theft-based loan fraud, which involves a genuine loan.
Let’s say you require a loan to cover your mortgage payments or necessary auto repairs. A con artist will take on the identity of a lender and guarantee to get you what you need, typically regardless of the state of your credit record. The sole drawback is that there is an initial processing charge.
However, you won’t hear from the “lender” again after you pay the fee. “Everything was a scam to deceive you into paying a processing fee for an illusory loan.”
Beware of lenders who don’t check your credit or who say it doesn’t matter. You can learn more about how to protect yourself from no-credit-check scams from the FTC.✅
Home Loan (Mortgage) Fraud
Another prevalent and dangerous kind of loan fraud is mortgage fraud.
An identity thief can apply for mortgages in your name if they have access to enough of your personal data, including your Social Security number and tax return.
A thief can even falsify property ownership (i. e. , deed fraud) and offer your house to a gullible buyer. Alternatively, they could apply for a reverse mortgage and pilfer your home’s equity.
Taking part in a mortgage or real estate scam is another kind of fraud. Here, a dishonest buyer, a homeowner, and an appraiser collaborate to submit an application for an exorbitant mortgage loan, after which they divide the profits.
The victim, also known as a “straw borrower,” is a credit-worthy innocent individual who is duped into thinking the real estate scam is an investment. Even if the house goes into foreclosure, the straw borrower will not be able to pay off the mortgage due to its excessive cost.
Business Loan Fraud
When applying for small business loan programs from banks or other private lenders, fraudsters may provide false information, according to organizations like the Small Business Administration (SBA).
Someone can use your information to apply for a business loan in your name — even if you don’t have a business. Thieves use stolen identities to apply for investment money or an economic injury disaster loan. Of the nearly $1 trillion in distributed support for small businesses, an estimated 5% was lost to fraud [*].
COVID-19 Paycheck Protection Program (PPP) Loan Fraud
Because of the pandemic Paycheck Protection Program’s (PPP) lax regulations, fraudsters have also flocked to it.
Due to the fact that the loan from the Coronavirus Aid Program did not always need to be repaid, con artists applied with stolen or fraudulent data.
You can report PPP fraud or SBA loan fraud through the SBA website if you have been a victim of it or if you know of someone who has.
Payday Loan Fraud
Payday loans may be the easiest loan fraud option available to con artists.
Payday loan applications require very little verification to complete. Many con artists will use your name to open numerous fraudulent loans with various lenders. You’ll only know when they start coming to collect.
Additionally, con artists create phony payday loan websites in order to steal your money and personal data.
Make sure the lender you are considering is using a secure website to prevent identity theft of your bank information. Secure websites will use “https://” rather than “http://” and display a lock icon next to the URL.
You can also check to see if the lender is registered in your state (which is required by law). Contact your state’s bank regulator to make sure they’re legitimate.
Student Loan Fraud
There are a few different types of student loan fraud. One is similar to other identity theft-related scams where someone applies for student loans using your personal information.
However, the more prevalent kind of student loan fraud involves charging for “assistance” with a loan.
Fees for student loan consolidation, modification, or even forgiveness are frequently demanded by con artists. But after you pay, they disappear with your money.
In actuality, student loan consolidation is free, and loan reduction and forgiveness are uncommon unless certain conditions are met.
If you receive a student loan offer, you can verify it through an official .gov website, such as StudentAid.gov, which lists official loan servicers and official loan collection agencies.✅
Debt Consolidation Scam
Consolidating your debt can actually help you save money and get control over your debt repayment. But this also makes them easier prey for loan scammers who steal your money and never pay it back.
There’s a strong possibility that a debt consolidation company is attempting to con you if they advise you to cease communicating with your creditors.
What To Do if You’re the Victim of Loan Fraud
It’s possible that loan fraud will go unnoticed by you until much later. However, the quicker you spot the con, the sooner you can stop the con artists and safeguard your credit.
If you subscribe to a credit monitoring service, you’ll receive prompt notifications about any questionable transactions or loans made in your name. Otherwise, a decline in your credit score, calls from collection agencies, or odd bills for accounts you don’t recognize are the biggest warning signs.
What to do next if you believe you have been conned is as follows:
- Get your documents together. Gather any screenshots, emails, or other correspondence you believe will support your claim with the scammer.
- Submit a report to the FTC on IdentityTheft. gov. This serves as your formal declaration of identity theft and can shield you from liability for loans that were obtained fraudulently.
- File a police report with your local law enforcement. When you know who stole your identity or a financial institution requests a police report, you must take these steps.
- Make contact with any affected financial institutions, lenders, or governmental organizations (like the SBA). Inform them that you have lodged a complaint, or address the issue with them directly. To inquire about a fraudulent SBA or PPP loan, for instance, get in touch with the SBA’s Office of Disaster Assistance.
- Set up a credit freeze or fraud alert. This hinders con artists from obtaining new loans in your name.
- Protect yourself from further identity theft. Aura offers $1 million in coverage for qualifying losses resulting from identity theft, device and network security, credit monitoring, and identity theft protection.
It’s important to report fraud to help prevent future cases. ReportFraud. FTC. gov is the best way to do this.
Loan, bank, and wire fraudsters may be subject to criminal prosecution, millions of dollars in fines, and up to 30 years in prison.
Numerous regulatory bodies keep a close eye out for loan fraud schemes and pursue those responsible for it. Including the Attorney General, the FBI, the Federal Trade Commission (FTC), and the Office of the Inspector General
The Bottom Line: Protect Yourself from Loan Fraud
One of the first things con artists frequently do with your stolen identity is loan fraud. However, you can protect your identity and credit by taking a few precautions.
Always be cautious about who you divulge information to, especially with regard to your bank account and Social Security numbers. (Be particularly cautious when using your Social Security number because, even in cases of fraud or identity theft, it isn’t always possible to modify it. ) Before disclosing personal information or sending money, confirm any loan programs, offers, and collection agencies.
You can stay safe and prevent many forms of loan fraud by being vigilant.
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FAQ
What is the fake loan process?
Typically, the con involves calling the target and promising a fictitious loan offer. The con artist will demand payment of an advance or processing fee prior to the loan being authorized. The con artists will disappear with the money after it is received.
What is a false loan application?
Application fraud is a sort of criminal activity where a dishonest person applies for a loan or credit line with the intention of not repaying it using a stolen or fake ID.
Is loan stacking a crime?
While “stacking” loans is legal, financial institutions lose billions of dollars to the practice annually as a result of application fraud, or the deliberate default on loans taken out by loan stackers. Credit shopping, credit stacking, and fraud stacking are the three categories of loan stacking.
Read More :
https://www.aura.com/learn/loan-fraud