What Are The Most Common Types Of Fraud?

Fraud varies depending on the industry. Breaking down the patterns and characteristics of fraud types can aid in responding to and protecting against it more effectively. The three most common types of fraud across all industries are first, second, and third-party fraud. 

 

First-party fraud 

First-party fraud occurs when an individual intentionally misrepresents their identity and/or gives false information for financial or material gain. This type of fraud occurs when customers apply for credit cards, loans, overdrafts or other unsecured banking credit lines with no intention of paying. 

A few examples of first-party fraud include;

• Submitting falsified financials to acquire a loan without the intention of paying it back.

• Obtaining a new credit card with the intention of maxing it out and never paying it back.

• Falsifying employment records and/or income records to acquire a more favourable interest rate on a loan. 

Consumers in financial distress gain an incentive to commit first-party fraud when the economic market is competitive and volatile. Recent Equifax Canada mortgage fraud trends reported that first-party fraud accounted for over 90 percent of all suspected fraudulent applications in H1 2022. 

 

Second-party fraud

Second-party fraud occurs when a consumer willingly provides their personal information and identity to someone who wants to act fraudulently. This form of fraud has been used to target young people as well as seniors through digital platforms. 

Some examples of second-party fraud include; 

• A fraudster sending an email disguised as another entity or person and acquiring banking information from a consumer. 

• Social media messages tricking consumers into providing their personal information such as their email, SIN number, address, etc. which then gets used fraudulently. 

Identity fraud accounted for approximately 68 percent of total banking fraud in Q4 2021. Consumers need to be aware of the risks associated with providing personal information for fraudulent purposes and how to spot second-party fraud to protect and prevent future incidents. 

 

Third-party fraud

Third-party fraud occurs in unsecured lending and indicates that someone other than the owner of those credentials is attempting to perpetrate a crime. Third-party fraud is usually done at a larger scale. Lenders are able to identify this type of fraud or it can be reported by the account holder. 

Some examples of third-party fraud are;

• A fraudster taking over a consumer account to use/change their personal information and illegally withdraw finances on their behalf. 

• A synthetic identity is created using multiple consumer’s personal information to illegally take out loans and credit. 

• When a false identity is created to take out credit, loans, and other financial activities. 

 

How big of a problem are these types of fraud? 

Fraudsters are sophisticated and will quickly change and adapt their approaches to exploit businesses and consumers. This was evident with the trends we saw throughout the global pandemic. We saw increases in account takeover, identity theft, various scams targeted at businesses, and consumers being exploited as a result of federal benefit programs that fraudsters took advantage of during the pandemic. As we move into the post-pandemic period, we’re starting to see both new and pre-pandemic trends emerging. The unfortunate reality is that fraud is still thriving. Understanding the common types of fraud, however, can help to prevent fraudulent activity before it happens. 

If your client wants to learn how to report suspected fraud or if they would like to put an alert on their credit report, they can learn how to do so on our website.

 

We want to help Canadians live their financial best. If you want to learn more about how understanding fraud can help minimize risk and reduce loss due to fraud, please contact your Equifax Account Representative. You can also reach us directly at 1-855-233-9226 and follow us on Twitter and LinkedIn.  

 

This article is published by Equifax Canada Co.® 2022. All rights reserved. No part of this article may be reproduced, copied or transmitted in any form or by any means, or stored in a retrieval system of any nature, without the prior permission of Equifax Canada Co. This article is for informational purposes only and is not intended to be legal or business  advice.