Risk alert: New variations of fraudulent online loan applications

Credit unions are again reporting variations of fraudulent online loan applications, according to the latest risk alert from CUNA Mutual Group.

The so-called “honeymoon scam” was originally discovered in the Northeast, and has resurfaced in California. One credit union reported receiving several online applications in the amount of $25,000 for the stated purpose of “daughter’s wedding,” while another fraudulent online application was reported in the Midwest requesting $60,000 for an auto loan, according to the risk alert.

The risk alert states that the digital loan fraud schemes typically include the following characteristics:

  • fraudsters open online accounts with stolen ID information, apply for personal loans with the intent to wire funds out of the credit union account;
  • requests can often be traced back to a common IP address;
  • fraudsters refuse to meet branch staff in person and only want to communicate online or by phone;
  • loans were closed using electronic signatures;
  • fraudulent paystubs may be used to verify income; and
  • fraudulent driver’s licenses are used to verify identity.

Risk mitigation tips for credit unions
Online applications are available to a broader set of prospective members, which means this channel is the preferred method of application for fraudsters. The challenge is to strike a balance between risk mitigation and member service, the risk alert states.  

To identify and prevent approval of fraudulent loan applications, credit unions should consider:

  • applying increased scrutiny of applications received via online or non-member facing channels;
  • utilizing a fraud detection service to validate addresses associated with the name and Social Security number provided on the loan application;
  • completing a google search to confirm the online photo matches their driver’s license photo for applicants in a public profession;
  • scrutinizing paystubs for any irregularities;
  • using phone verification to verify income and employer information;
  • googling the employer contact information (do not use information provided by the applicant);
  • utilizing a knowledge-based authentication service prior to allowing loans to be signed via electronic signature, and employees should take note of missed questions; and
  • educating lending staff and hiring managers regarding the risk of online scams and characteristics of fraudulent paystubs.

To prevent and reduce loan application fraud, your strategy and fraud detection system should include a combination of identity verification, account onboarding protection and account monitoring.

CUNA Mutual Group’s risk alerts, in addition to additional risk-prevention resources, may be accessed in their Protection Resource Center. Log-in is required.

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