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How People Commit Fraud in Unsecured Personal Lending

Search Google for loan fraud and you’ll get all kinds of information on lenders scamming borrowers. There is much less information available on scams perpetrated against lenders, but it happens. In fact, we could categorize unsecured personal lending scams into three basic types of fraud:

  1. Application Fraud
  2. Information Fraud
  3. Asset Theft

Types of Unsecured Personal Loan Application Fraud

Perhaps the most basic type of loan fraud is application fraud. It occurs when a potential borrower provides misleading information on an unsecured personal loan application. Borrowers attempt to defraud lenders in a number of ways by presenting false or misleading information on their loan applications. Here are some of the most common examples of application fraud targeting unsecured personal lending institutions:

  • Identity Theft – With identity theft, the applicant uses someone else’s identification to secure a loan. This personal information may include name, social security number, bank account information, credit card numbers, and other personal identification while associating that information with an e-mail address, PayPal address, or other accounts where the fraudster can access the money once it has been loaned. In the case of cash loans, the fraudster need only present identification that verifies the victim exists. In some cases, they may be able to show some proof that they are that individual. In any case, once the identification of the victim has been verified, the fraudster gains access to loan funds and disappears.
  • Fake Bank Account – A little more difficult to pull off is the fake bank account. This usually involves the creation of a fake identification. Since the fraudster isn’t claiming to be an actual real person, the only victim of this crime is the lending institution. The borrower uses the black market or underground resources to secure a fake name, social security number, birth certificate, and other personal documents to give the impression that they are a legitimate individual. Once that is accomplished, they set up a bank account in the fictitious person’s name and use that account as the basis for applying for an unsecured loan. Once the deposit has been made, they can make a large cash withdrawal and disappear.
  • Other Loan Misinformation – Other types of lender fraud include subtle misinformation. For instance, misrepresenting one’s income or personal assets. Other fraudsters may include illegitimate personal references or employers. These types of fraud generally require a co-conspirator—either a friend or relative—who acts as the reference or employer on behalf of the fraudster. Once the loan has been made and the fraudsters have access to it, they all disappear. Other application fraud schemes may be more sophisticated and require multiple actors.

While many lenders have discovered ways of detecting application fraud, and law enforcement agencies have been successful in bringing fraudsters to justice, it is important to recognize that these scams continue to plague the unsecured personal lending industry and companies that do not take measures to detect and prevent it could fall victim to it at the drop of a hat. The best defense against application fraud is vigilant identity and bank account verification. Visit http://www.microbilt.com for more information.

Types of Unsecured Personal Loan Information Fraud

With information fraud, people use breached or compromised information to gain access to bank accounts, loan applications, and other tools to defraud lending institutions at someone else’s expense. Here are some common types of information fraud.

  • Web Scraping – Web scraping involves the use of web crawlers to seek out and find personally identifying information through social media accounts and other websites where people sign up for membership or set up profiles. This practice is often followed up by fraudsters setting up fake accounts themselves to troll individuals and lure them into giving away other information, which is then used to steal identities or apply for loans using application fraud techniques.
  • Account Hacking – A more nefarious form of lending fraud involves hacking into the bank account of an individual and applying for a loan on their behalf. The fraudster usually has a way of re-routing borrowed money into their own personal accounts and absconding with the funds before the scam is detected.
  • Loan Phishing Scams – A very common way in the digital age to acquire information that can then be used in the execution of a loan fraud is through phishing schemes. Fraudsters send an e-mail to unsuspecting individuals purporting to be their bank or other financial institution—PayPal has been used quite often as the face of these scammers. The fraudster attempts to get the e-mail recipient to click a link and enter account information into a site designed to look like the victim’s bank website. However, what the victim often does not know is that the site is a hoax and they are sending their bank account information to the person who will then use it to wreak havoc on their lives. Such schemes defraud the unsuspecting victim then defraud the lending institution as the information gatherer uses that falsely acquired information to apply for a loan and then runs off with the money.
  • Accessing Data Leaked on the Dark Web – Underneath the billions of web pages indexed by the search engines, there are billions more that are only accessible if you know how to find them. Fraudsters have become adept at searching the Dark Web, or DarkNet, to find information they can use in identity theft, account hacking, application fraud, and other types of unsecured personal lending fraud. They use a networking technology known as Tor that allows them to use the Dark Web and search for the information they are looking for anonymously.

Types of Unsecured Personal Loan Asset Theft

Asset theft takes place when an individual or institution steals money or other valuables in the process of borrowing money. Some of the common ways this is done are listed below.

  • Bankruptcy Fraud – When individuals file for bankruptcy, they may apply for a loan to pay off debtors and to protect certain personal assets allowed protection under the law. Bankruptcy fraud involves the hiding of assets or income or non-disclosure of certain assets or income that might cause the lending institution to deny the loan.
  • Wire Intercept – Similar to account hacking, wire intercepts allow fraudsters a high-tech way to re-route money transfers from their original destination into their own bank accounts. This type of fraud has become more prevalent in recent years and often involves intercepting loan funds and re-routing them to offshore or foreign bank accounts.
  • Account Takeover – An account takeover is a more sophisticated form of hacking that involves the added step of shutting an individual out of their own bank accounts.
  • P2P Money Transfers – The rise of crowdfunding, marketplace lending, and peer-to-peer (P2P) networks have allowed individuals to transfer money instantly from one party to another through mobile apps without the need for an intermediary. The problem is, these apps can often be unsecured or easily hacked by fraudsters seeking information to steal, exploit, or to use wire intercept and account takeover techniques to access borrower or lender funds.
  • Mule Herding – In the underground economy, fraudsters may seek out what are known as mules. These are individuals who will do the dirty work for the fraudster then send the cash to the fraudster through Western Union or other channels. They are usually found through the Dark Web and may be involved in fraud at any number of levels including information retrieval, application fraud, data breach services, and hands-on theft and delivery of assets.

In the digital age, fraud prevention is not simply the responsibility of individuals who may fall victim to fraud. It’s also the responsibility of the lending institutions whose reputations and assets may be on the line, as well. Data and information security is becoming more important daily for the protection of the entire unsecured personal lending industry. A few companies we covered previously which provide services that can help with anti-fraud solutions are https://emailage.com and http://www.microbilt.com

Author: Allen Taylor

Allen Taylor
Allen Taylor

About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( www.currencymountain.com ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.

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