Current account fraud falls as mortgage fraud rises for sixth successive year

Fraudulent applications for current accounts fell sharply during the past 12 months. Current account fraud peaked in Q1 2012, with around 19 in every 10,000 applications found to have a criminal element, but this has since declined to around 15 in every 10,000 enquiries – marking a drop of around a quarter.

Despite current account fraud falling, the overall rate of fraud at point of application across the UK’s financial services sector continues to inch higher, with a three per cent increase within the past year.

This is in part due to a rise in mortgage fraud for the sixth successive year, with a hike of nine per cent from 2011 to 2012. In addition to record mortgage fraud figures, this overall jump was also driven by growth in credit card and savings fraud.

Our data shows that the majority (71 per cent) of attempted current account fraud in 2012 was down to individuals misrepresenting their personal information on applications.

Typically these first party perpetrators involve an individual attempting to hide their adverse credit history when opening a current account or applying for an overdraft.

The remaining 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.

The decline in current account fraud is a positive step for the financial services industry as current account fraud is often the first step for fraudsters who later plan mortgage, loan or credit card deception. It is also important to highlight that the drop is very much the result of better systems and vigilance by financial services providers.

Our analysis of fraudulent applications using its Mosaic classification revealed that fraud was highest amongst the Terraced Melting Pot group. This group, which represents those in relatively routine urban occupations, was responsible for more than one in five (21 per cent) first party fraud cases in 2012. Fraudulent applications were also high amongst the Liberal Opinion group, consisting of young, professional and well-educated people. This demographic accounted for around one in seven (14 per cent) first party fraud cases in 2012.

Given the challenging economic climate and on-going squeeze on personal incomes, it comes as no surprise that the vast majority of frauds continue to be attempted by individuals. As a result of poor or patchy credit, more and more ‘non-professional’ fraudsters are clearly attempting to ease their position, misrepresent applications or make exaggerated claims over their income and personal finances.

In 2012, about 70 per cent of financial services application fraud in the UK is down to first parties misrepresenting their circumstances. The insurance, automotive and mortgage industries have a significant first party fraud element to them.

Mortgage fraud

The rate of mortgage fraud increased to 38 in every 10,000 applications in 2012 – up from 35 in every 10,000 in 2011. The majority (89 per cent) of attempted mortgage fraud in 2012 was down to individuals painting a knowingly false portrait of their personal circumstances on applications. Typically this involved falsifying employment status or financial information and – most commonly – attempting to hide a poor credit history. Mortgage fraud cases were highest amongst the Suburban Mindsets’ group, predominantly middle aged, middle and skilled working class individuals. This group accounted for 15 per cent of first party mortgage fraud cases in 2012.

Insurance and credit card fraud

Insurance fraud rates reached 12 in every 10,000 applications and claims in 2012, an increase of seven per cent during the past year. Again the vast majority (86 per cent) of insurance fraud was first-party led with the Terraced Melting Pot group accounting for nearly one in four (22 per cent) cases.

Credit card fraud is also on the rise – from 12 in every 10,000 applications in 2011 to 15 in every 10,000 in 2012. Nearly one in seven (15 per cent) fraud cases were from the Terraced Melting Pot group, while the Liberal Opinions group was responsible for 14 per cent of fraudulent applications.

Automotive fraud rates continue to fall

Not all financial products saw fraud rates increase in 2012. Automotive finance continues to be a top-performer in fighting fraud – despite a big jump in car sales last year. In 2012, 17 in every 10,000 applications were found to be fraudulent – down from 23 in every 10,000 during 2011. More than eight out of 10 fraudulent applications (83 per cent) were found to be first party.

Predictions for the year ahead

The likelihood is that fraudulent applications will continue to rise throughout 2013. It will be driven by a number of factors including the on-going squeeze on household incomes and benefits, while stricter credit and lending criteria will drive more attempts.

Mortgage, current accounts, insurance and cards will continue to come under pressure from fraudsters keen to get their hands on cash facilities. It is therefore vital that banks, the financial services sector, online retailers, ecommerce and local authorities maintain their vigilance and accurately assess the likelihood of fraud by verifying the identities of the people they interact with to ensure they are building trusted relationships with legitimate customers.

Fraud prevention and detection tools which allow organisations to detect, monitor and assess risk will help firms identify anomalies within applications and check for signs of adverse credit history.  This is essential to restrict the significant damage fraud can do to the bottom line.

The data is outlined in more detail in the latest edition of our Fraud Report. To get a copy, please click here.