As more individuals gain access to the internet and more websites emerge, hackers have more opportunities.
Loan application fraud has been one of the most common scams throughout time.
This fraud, which involves taking personal information from people and utilizing it to gain a loan, has already had severely devastating consequences for organizations, businesses and individuals.
As a result, many businesses are already battening down the hatches and looking for ways to safeguard themselves and their customers.
Continue reading if you find yourself in this situation. We'll go through the top seven ways of preventing loan application fraud in this article.
Let's get started.
Understanding loan fraud: what is it?
Understanding loan fraud is the first step in putting measures in place to safeguard your company or organization.
Loan fraud is defined as when someone exploits your identity to secure a loan without your permission.
A fraudulent act is sometimes committed by the person or organization offering the loan (the creditor). Occasionally, the borrower (the debtor) is the one demonstrating bad faith.
Mortgage fraud, payday fraud, and loan frauds are all examples of loan fraud. In each of them, someone will be left out of pocket, while the counterparty will profit and disappear.
5 Types of loan fraud
There are several types of loan fraud that can occur. Some of the more prevalent ones are listed below.
Personal loan fraud
The most prevalent and recurrent type of loan fraud is personal fraud. It happens when someone takes out a loan by lying on their application. They could, for example, lie about their income or capacity to repay the loan.
Second-party loan fraud
Second-party fraud is identical to first-party fraud, except that the fraudster "borrows" an accomplice's identity. The accomplice might be a family member or a friend who is or is not aware of the borrowing scheme.
Third-party loan fraud
Third-party loan fraud occurs when a person borrows money under the guise of another person. In this situation, an individual (or group of individuals) provides fraudulent identification information to a creditor in order to borrow money.
Loan and debt collection scams
Debt collection schemes are intended to attack debtors. These deceptive techniques are used to dupe customers into paying a charge to get access to a loan or to frighten borrowers into repaying a loan to the wrong company.
Mortgage fraud
Mortgage lenders, who provide loans for the purchase of property, are equally vulnerable to fraud. Fraudsters may attempt to game the mortgage system in order to obtain a better loan or gain access to a property.
Borrowers who conduct property fraud are often motivated by the desire to keep their present property or gain a new one. These borrowers believe they are unlikely to be accepted for a loan if they provide honest information, therefore they falsify or omit important facts such as job and income, debt and credit, or property worth in order to boost their chances of acceptance and even acquire better loan conditions.
Why you need to prevent loan fraud
Loan fraud has a wide range of negative implications, which aren't limited to banks, governments, and lending organizations.
A thief may, at the very least, take out many payday loans in your name. In the worst-case scenario, a fraudster may create a genuine house, business, or auto loan on your behalf, which you would be liable for repaying.
You may be found responsible for money taken out in your name if you are a victim of loan fraud. If you don't pay back the loan, you might face a significant penalty on your credit score as well as criminal prosecution.
Loan fraud might be difficult to detect at times. Especially if the fraudster is based in another state or has gained access to your mail through a change-of-address scheme.
Finally, if an identity thief has used your stolen identity to obtain a loan, they may be attempting additional types of fraud with it.
Fortunately, the majority of victims can show that the loan was acquired by an identity thief. However, dealing with the procedure is still a negative experience that can have long-term consequences for your credit.
7 Steps for preventing loan application fraud
Today, owing to technological advancements, there are several methods for preventing loan application fraud. Some of the most important and relevant are listed here.
ID verification and facial recognition
Implementing secure technological solutions, such as ID verification and face recognition, is one of the first steps in preventing loan fraud.
ID verification is a type of authentication that compares a person's claimed identification against data that verifies it. Birth certificates, social security cards, driver's licenses, and other papers can all act as suppliers of this objective reality.
In addition to checking papers, which may have been stolen, you may also deploy a facial recognition system to give even more secure prevention of loan fraud.
Facial recognition is a technology-based method of recognizing a human face.
It is a biometric identification approach that uses a person's face biometric pattern and data to authenticate his or her identity.
Identity data validation
Identity data validation is the process of verifying that an individual's personal information, such as their name, address, phone number, and email address, exists in the actual world.
Checking databases such as postal address files, phone records, or even basic credit data might help you achieve this.
Digital footprint
A digital footprint, also known as a digital shadow or an electronic footprint, is the trail of data you leave when you use the internet. It includes websites you browse, emails you send, and online forms you fill out. A person's internet actions and gadgets can be tracked via a digital footprint.
Because these behaviors and habits are difficult to impersonate, using digital footprints for verification is a good strategy for avoiding fraud.
As a result, analyzing a user's digital footprint might lead to the discovery of fraud. For example, if a single IP address is used to establish multiple new accounts in a short period of time, you may suspect fraud.
Bank account verification
The process of determining if funds are transferred between genuine bank accounts is known as bank account verification.
This technique assists your company in verifying the submitted bank account information and confirming that it belongs to the rightful owner. Finally, you may be confident that the funds are coming from the appropriate source.
Knowledge-based authentication
Knowledge-based authentication, abbreviated KBA, is an authentication method based on a series of knowledge questions used to validate a person's identity in order to prevent unwanted access to a location or, more typically nowadays, an account.
KBA authentication is classified into two types: static and dynamic.
Static knowledge-based authentication, one of the most extensively used security approaches, is sometimes known as "shared secrets" or "shared secret questions." When establishing an account, the user selects the static KBA question.
As a result, both the question and the response are saved for future use when identity verification is necessary.
Unlike static KBA, which requires the user to establish a security question and supply the answer when creating an account, dynamic KBA does not need the user to construct a security question and provide the answer when creating an account.
This implies that the questions are created in real-time using data connected with an ID number. "Select the last digits of your social security number," for example.
Phone and social media authentication
Using social network accounts for authentication is becoming more popular. This sort of authentication allows users to access the Internet using their current social network accounts, such as Facebook or Twitter, without having to submit additional credentials.
In this way, you may have greater confidence in the veracity of the users and the validity of their acts.
In terms of social media, several websites are employing phone authentication, which appears to be more secure than social media authentication.
Because it is impossible to fake phone numbers, you can be certain that the user is genuine.
Two-factor authentication
Two-factor authentication is one of the more popular verification methods on the web.
It improves security by requiring two verification methods (also called authentication factors) to prove your identity. A security factor can include something you know - such as your email address and password - along with something you have - such as a smartphone app - to approve authentication requests.
Conclusion
This concludes our blog post on the top seven steps to preventing loan application fraud.
As shown throughout, these types of financial crimes can have serious financial and legal consequences for your company, organization, and users.
By preventing it now, you'll avoid these negative repercussions. As we've already noted, there are several ways to ensure your users' safety. You can select the ones that are most appropriate for your organization.
Thank you for taking the time to read this blog post. Hopefully, you found it informative and relevant.
WRITTEN BY
Flavia Silipo