Steep rise in the prevention of fraudulent credit card applications

Our analysis has revealed a significant rise in detected and prevented fraud attempts during the first half of 2013, as providers make headway in the fight against application fraud.

Figures also show that fraudulent applications made as a result of identity theft have almost doubled in 2013 – but the attempts have been thwarted thanks to improved fraud prevention systems.

Our latest Fraud Index* shows that fraudulent applications for credit cards saw the largest rise in 2013 – from 14 in every 10,000 applications in H1 2012 to 25 in every 10,000 in H1 2013 (January – June 2013).

Recorded fraud attempts have also risen across insurance, which reached peak levels in 2013, as well as savings, loans and automotive finance.

Analysis also shows that identity theft now accounts for nearly half (46%) of all fraud attempts – compared with just 27 per cent last year – highlighting the critical impact of ID theft.

Although there’s been a significant increase in attempted fraud, investment in better fraud prevention by the UK’s financial services sector is paying off with our institutions uncovering greater numbers of fraud cases at the point of application.

The financial services industry is making progress in combatting fraud, and it is encouraging that more fraud is being detected and prevented than ever before. However we should not be complacent. Although better systems are in place both lenders and consumers need to remain constantly vigilant, especially against the rising threat of identity theft.

Our analysis also suggests that fraud is increasing in major areas such as credit cards, insurance, savings accounts and automotive finance. Organisations can take simple steps to mitigate risk so that they crackdown on individuals misrepresenting their personal information while also preventing third-party identity fraudsters seeking to open accounts as a springboard for  other, more lucrative credit products. At the same time, consumers need to keep a close eye on their personal credit information and, where possible, take every practicable step to avoid becoming a victim to identity theft. Sector-by-sector analysis is outlined below.

Insurance fraud

In the insurance market, the number of insurance applications found to be fraudulent reached peak levels in H1 2013 with 14 false claims in every 10,000 applications, compared with 11 in every 10,000 in H1 2012. 

Mortgage fraud

While instances of mortgage fraud are falling, this sector still sees the highest rate of fraudulent applications across financial services. In H1 2013, 31 in every 10,000 mortgage applications were found to be fraudulent compared with 37 in every 10,000 in the same period in 2012. While attempts at hiding adverse credit (23%) were still the most common type of fraud, the misuse of mortgaged property and hidden buy-to-let were two of the areas to see a big rise compared to the previous year.

Automotive finance fraud

The automotive finance industry also saw an increase in the number of known fraud cases in H1 2013. Up to 21 in every 10,000 applications were discovered to be fraudulent, rising from 17 in every 10,000 applications in the corresponding period last year. Attempts at hiding adverse credit (62%) were still the most common method when applying for automotive finance. However, fronting – when a lower-risk, usually older, driver insures a vehicle in their name, even though the main driver is higher risk – saw the biggest increase, up by seven per cent, year on year.

Savings account fraud

Known cases of savings account fraud have risen from 13 in every 10,000 applications in H1 2012, to 17 in every 10,000 applications in H1 2013. The vast majority of fraud was ID theft, conducted by third party individuals, often perpetrated for money laundering.

Loan fraud

Fraudulent loan applications continue to account for the fewest number of fraud cases across financial services, with six in every 10,000 applications discovered to be fraudulent in H1 2013. Attempting to hide an adverse credit history continues to be the preferred method in one third of attempted loan fraud cases.

Current account fraud

Current account fraud was the only other area to see a marked fall in the number of fraud cases found, with 20 in every 10,000 applications received by financial institutions detected as fraudulent in H1 2013, compared to 44 in every 10,000 during H1 2012.

*Experian’s Fraud Index is based on data derived from National Hunter and Insurance Hunter, the UK’s leading fraud prevention systems, operated by Experian on behalf of members.  These systems enable financial institutions to cross-match applications against over 100 million previous application records in order to spot commonalities and anomalies that are potentially indicative of fraud for further investigation.