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Bureaus play pivotal role in fraud prevention

fraud prevention

With the increasing prevalence and frequency of cybercrimes such as phishing, spoofing and data breaches, which compromise the personal identity information of individuals, the risk of identity theft and its use in credit application fraud has never been greater.

Statistics released in 2017 by the South African Fraud Prevention Service indicate that identity theft has increased by 200% over the past six years, while the most recent statistics available from the South African Banking Risk Information Centre show that credit card fraud increased by 13%, from R331.4m in 2015 to R375.4m in 2016.

People tend to only find out that they’ve become victims of identity theft or credit application fraud when a credit provider or debt collector calls them about an overdue account or outstanding debt.

In this regard, credit bureaus fulfil an important role as they have the systems to verify credit card usage, identify high-risk transactions and protect against credit application fraud. Frank Lenisa, director at local credit bureau Compuscan, says in an environment where it’s difficult to know who to trust, credit bureaus provide an objective measure of the facts.

“This allows credit providers to verify identities and notify consumers when new accounts are opened in their names.”

Lenisa suggests that consumers check their credit reports regularly, not just to review and manage their creditworthiness, but also to protect themselves.

Information contained in a credit report that should raise alarm bells includes irregular searches made for credit applications, incorrect or altered personal details, or additional loans, credit cards or accounts that were not initiated by the consumer.

Credit bureaus also assist retailers and lenders in mitigating these risks by preventing credit application fraud through systems that highlight, in real time, possible differences in consumer information provided on an application. This helps to avoid and reduce fraud charge-offs and the potential for losses, as vendors that do not have the capabilities in place to reduce or mitigate application fraud can be held liable for reimbursing the funds lost and the associated costs.

According to Frank Knight, CEO of credit management specialist Debtsource, the issue of application fraud is just as prevalent in the business-to-business credit sector.

“Three years ago we experienced a fraud rate of one in 2,000 trade credit applications, but today that is closer to one in 400.”

Knight says commercial identity theft and the creation of fake businesses have become prevalent forms of commercial fraud. “Businesses of all sizes require the capabilities to assess trade credit applications based on financial and other company information to properly vet potential partners and customers, and make appropriate limit decisions.”

This article was originally published in Business Day on 22 February 2018.