New Account Fraud: Financial Identity Theft

In this article it is important to flesh out New Account Fraud

It is important to flesh out New Account Fraud and its impact on consumers and their credit lines. As identity thieves continue to breach data bases and steal Social Security numbers, new account fraud will continue to plague the public.

New Account Fraud

New Account Fraud is generally financial identity theft in the form of new accounts using another's personal identifying information to obtain products and services using that person’s good credit standing. A Social Security Number (SSN) is often, but not always, required for most lines of credit to commit new account fraud. When applying for new accounts, the thief is likely to use a different mailing address; the victim never sees the bills for these new accounts and may or may not eventually be contacted by the creditors when the debt goes unpaid.

Utility Fraud

There are numerous forms of new account fraud that can occur. The opening of new utilities, including gas, electric, phone, cable and more can equate to as much as 20 percent of all identity theft. Utilities, city to city and state to state, handle credit in different ways. Many require an SSN to turn on services, while others just need a name and address. In cases where no SSN is required, the fraud is often absorbed by the utility and victims will only become aware of it when they request a utility in that city and are denied due to non-payment by the thief.

Utilities that require SSN may or may not check the credit of the person when opening the new account. In the event, the bill is not paid the utility who issued credit may simply shut off the account or attach the debt onto the victim's credit report via their SSN. In these cases, the victim may find out only when they or a creditor goes to check their credit for another loan and then sees the debt and is denied credit.

I worked on a case and appeared on a broadcast with a woman whose husband was fighting in the Iraqi War, while she was at home waging her own battle at home. An identity thief stole her husband's identity and opened numerous utilities under his name. She was contacted by the IRS and various utilities. Payment was demanded even though she explained it wasn’t possible for her husband to have opened the accounts. At the time, the thief had been functioning as this man for 3.5 years.

Loan Fraud

SSNs are required for new accounts in the form of loans for most, if not all, big ticket items (e.g., cars, boats, homes, and even smaller, “payday” loans). Loans of this type equate to approximately 10 percent of all identity theft. Identity theft of this kind is often an inside job—meaning those who have access to the data and/or the victim are the ones committing this type of crime. Examples include an automobile salesperson that has access to client data and understands the process of applying for a loan and buying a car may be more likely to commit the crime.

Real estate agents who have access to client data and understand the buying/selling process of homes and mortgages have been known to commit mortgage fraud as it relates to new accounts.

In all of these cases the victim will not find out about the fraud until the car has long been sold on the black market and the bill never gets paid, or until the home is flipped or the mortgage refinanced, and the debt goes outstanding.

Credit Card Fraud

The most lucrative and most prevalent new account fraud is new credit card accounts. Credit card fraud equates to almost half of all identity theft. Simply put, identity thieves love credit cards because they are the easiest new accounts to open, and they can turn into cash the fastest.

The system of credit is based on “easy.” Easy credit is the foundation of a credit-driven society, and the recession hasn’t dampened the issuance of credit cards. The last I read, there are as many as 3.5 billion pre-approved credit card applications mailed every year to consumers' mailboxes. Credit cards are generally issued to those of legal age, 18 plus. At 15 years they may be able to piggyback on their parents' credit cards. But as soon as they graduate high school or get to that age, the process begins.

If there are 200 million people age 18 and over receiving all these applications, that’s a lot of junk mail that goes in the trash.

Identity thieves figured out a long time ago that pre-approved applications found in the trash hold a degree of creditability in the mind of the issuing bank. After all, the bank mailed it to the intended recipient, and when the bank got it back with most of the information looking right, they issue the card. I’ve viewed plenty of studies in which pre-approved credit card applications were torn up by hand then re-taped together, filled out and mailed in—and a credit card arrived within 10 days. Why?

Because, in the eyes of the bank, all the data checks out OK.

Online and telephone applications are just as easy to scam due to the anonymity of the transactions. All an identity thief needs are some key pieces of information—name, address, and SSN and they are off and running. Public computer terminals and throw-away cell phones ensure the thieves' anonymity.

Instant Credit

Instant credit means one thing: instant identity theft. Identity thieves froth at the mouth when they obtain personally identifiable information and are in range of a major retailer. How often have you been stopped in a store or the mall, and offered a teddy bear or T-shirt to sign up for 10 percent off your next purchase? Applying for instant credit is in-fact “instant.” It generally happens in less than 20 minutes and involves showing basic identification and providing an SSN—all of which can be easily obtained as real or fake.

What exacerbates the problem is when someone shares the victim's name and possesses identification that is the same as the victim. A simple search online will tell you who else shares your name and where they live. From there, doing some searches via public records and finding the deed to their home online may provide one with an SSN. If that fails to work, then buying one at a few online information brokers may do the trick. What’s worse is when families have members sharing the same name, and family members are prone to crime—fathers, sons, cousins, etc.

It’s simple enough to show ID and provide a verbal or written SSN for another person with the same name. The clerk administering the application gets a small commission and is happy to accommodate.

Once the identity thief receives the new card, he or she "maxes it out" and doesn’t pay the bill. Over time, the creditors track down the victim, blame him or her for the unpaid bills, and demand the owed funds. New account fraud destroys the victim’s credit and is a mess to clean up. The victim may not be held financially responsible for the charges themselves, but they will pay in time, and time is money. In some cases, they may pay lawyers or private investigators. Depending on how dire their credit situation becomes, they may even need to take time off from work.

Identity theft victims have been denied credit due to the unpaid debts in their names and have missed opportunities to purchase homes as a result. In many cases, victims' credit is destroyed as a result of thieves' actions; their subsequent credit ratings prompt creditors and even insurers to grant them higher interest rates due to their perceived risks.