New Account Fraud

What is New Account Fraud?

New account fraud is a type of fraud where a criminal uses someone else’s personal information to open a new account, such as a credit card or loan account, without the victim’s knowledge or consent. The fraudster can then use the new account to make purchases or obtain cash, leaving the victim to deal with the financial consequences.

New Account Fraud Methods

• Synthetic Identity Theft: Creating a new identity using a combination of real and fake information, such as a fake name, address, and Social Security number.
• Account Takeover: Gaining the access to an existing account and making unauthorized changes or transactions.
• Bust-Out Fraud: Building up credit history on a new account and then maxing out the credit limit or withdrawing funds before abandoning the account.
• Account Origination Fraud: Using stolen or synthetic identities to apply for new accounts, such as credit cards, loans, or bank accounts.
• Social Engineering: Manipulating individuals, often through phone or email, to obtain personal information, such as passwords or account numbers, which can be used to open new accounts or gain access to existing accounts.
• Malware and Phishing Attacks: Using malicious software or emails designed to look legitimate to steal personal information.

Common Targets of New Account Fraud

Fraudsters have a wide range of targets when it comes to new account fraud. Some examples of these include:

• Credit cards: Applying for credit cards with stolen or fake identities and then making unauthorized purchases, resulting in financial losses for both the credit card company and the victim whose identity was stolen.
• Bank accounts: Opening bank accounts with stolen identities to launder money or commit other forms of fraud, leading to financial losses for the bank and the victim.
• Online loans: Applying for loans and cash advances online with stolen or fake identities, causes financial losses for the lender and the victim.
• Mobile phone accounts: Using stolen identities to open mobile phone accounts and purchase expensive devices, resulting in financial losses for the mobile phone company and the victim.
• Retail credit cards: Applying for credit cards at retail stores with stolen or synthetic identities and using them to make unauthorized purchases, leading to financial losses for the retailer and the victim.
• Medical services: Obtaining medical services and prescription drugs with stolen identities, resulting in financial losses for healthcare providers and potential harm to the victim whose identity was stolen.

Learn how a top five U.S. bank identified risk associated with synthetics and potential mules in its customer accounts.

How to Detect and Prevent New Account Fraud

• Use multi-factor authentication
• Monitor account activity
• Educate customers about how to protect their personal information
• Implement fraud prevention software
• Establish partnerships with other financial institutions
• Use device recognition software to detect fraudulent account openings
• Verify applicant identity by asking for additional information or documentation
• Monitor social media for identity fraud discussions
• Train employees to identify and prevent new account fraud

Steps to take if you are a victim of New Account Fraud

Step 1: Contact the financial institution where the fraudulent account was opened and report the activity to their fraud department.

Step 2: Place a new account fraud alert on your credit report with one of the three major credit reporting agencies (Equifax, Experian, or TransUnion) to prevent additional fraudulent accounts from being opened in your name.

Step 3: Review your credit reports for any unauthorized activity and dispute any fraudulent accounts or charges.

Step 4: File a report with the Federal Trade Commission (FTC) and obtain an Identity Theft Report, which can be used to remove fraudulent accounts from your credit report.

Step 5: Consider freezing your credit report to prevent any new accounts from being opened without your knowledge or consent.

Step 6: Monitor your financial accounts and credit reports regularly for any suspicious activity, and continue to do so for an extended period to ensure that no additional fraudulent accounts are opened in your name.

Legal and Regulatory Framework

The legal and regulatory framework surrounding new account fraud is critical in ensuring the security of financial accounts. In the U.S., financial institutions must comply with federal and state laws and regulations, such as the Gramm-Leach-Bliley Act, Fair Credit Reporting Act, and Identity Theft and Assumption Deterrence Act. These laws require financial institutions to establish safeguards to protect customers’ non-public personal information and criminalize identity theft.

Regulatory compliance with industry standards and best practices established by organizations such as the Financial Industry Regulatory Authority (FINRA) and Consumer Financial Protection Bureau (CFPB) is essential in preventing new account fraud and protecting customer information. Ensuring compliance with these legal and regulatory requirements can help maintain the integrity and security of financial accounts.

Frequently Asked Questions

What are new account red flags?

Red flags include an applicant using a temporary or nonexistent address, inconsistent personal information, or suspicious behavior during the account opening process.

How can banks prevent New Account Fraud?

Banks can prevent New Account Fraud by using multi-factor authentication, monitoring account activity, and implementing identity fraud detection software.

How does first-party fraud aid in New Account Fraud?

First-party fraud occurs when an individual fraudulently applies for credit or loans in their own name, often using false information, and can contribute to New Account Fraud.

How does Synthetic Identity Fraud lead to New Account Fraud?

Synthetic Identity Fraud involves combining real and fake personal information to create a new identity and can be used to open new accounts.

Does biometric verification help prevent this type of fraud?

Biometric verification, such as fingerprint or facial recognition, can help prevent New Account Fraud by verifying the identity of the applicant before the account is opened.

What types of accounts are most commonly targeted by fraudsters?

Fraudsters most commonly target credit card accounts, but they may also open other types of accounts, such as loans, mortgages or mobile phone contracts.

Can New Account Fraud occur without the victim’s knowledge?

Yes, in some cases, fraudsters are able to open accounts without the victim’s knowledge or consent, using stolen personal information.

How can we prevent New Account Fraud?

Strategies and technologies, such as two-factor authentication, biometric verification, and transaction monitoring, can mitigate the risk of New Account Fraud to a significant extent.

Who is liable for losses resulting from New Account Fraud?

Liability for New Account Fraud losses depends on account agreements, actions of parties and laws.