Fraud & Identity

Last week, a group of us came together for a formal internal forum where we had the opportunity to compare notes with colleagues, hear updates on the challenges clients are facing and brainstorm solutions to client business problems across the discipline areas of analytics, fraud and software.   As usual, fraud prevention and fraud analytics were key areas of discussion but what was also notable was how big a role compliance is playing as a business driver.  First party fraud and identity theft detection are important components, sure, but as the Consumer Financial Protection Bureau (CFPB) gains momentum and more teeth, the demand for compliance accommodation and consistency grows critical as well.  The role of good fraud management is to help accomplish regulatory compliance by providing more than just fraud risk scores, it can help to: Know Your Customer (KYC) or Customer Information Program (CIP) details such as the match results and level of matching across name, address, SSN, date of birth, phone, and Driver’s License. Understand the results of checks for high risk identity conditions such as deceased SSN, SSN more frequently used by another, address mismatches, and more. Perform a check against the Office of Foreign Asset Control’s SDN list and the details of any matches. And while some fraud solutions out there make use of these types of comparisons when generating a score or decision, they may not pass these along to their customers.  And just think how valuable these details can be for both consistent compliance decisions and creating an audit trail for any possible audits.  

Consumers want to hear about data breaches - Eighty five percent of respondents in a recent study say learning about the loss of their data is pertinent to them. However, when they do, 72 percent indicated that they are dissatisfied with the notification letters they receive. Companies need to take note of these findings because more than one-third of consumers who receive a notification letter contemplate ending their relationship with the company. Providing affected individuals with a membership in an identity protection product is extremely important since 58 percent of consumers consider identity protection to be favorable compensation after a breach. Learn five pitfalls to avoid in your notification letters and how Experian Data Breach Resolution can help. Source: Download the complete 2012 consumer study on data breach notification.

2011 was the 12th consecutive year that identity theft topped the list of FTC consumer complaints. Florida had the highest rate of complaints, followed by Georgia and California. Rank State Complaints per 100,000 population 1 Florida 179 2 Georgia 120 3 California 104 Learn how to detect and manage fraud activity while meeting regulatory requirements. Source: Consumer info.com infographic and FTC's Consumer Sentinel Network Data Book for January-December 2011.

When data breaches occur, damage to a company’s reputation becomes a significant cost that must be factored into the total financial loss.

With the most recent guidance newly issued by the Federal Financial Institutions Examination Council (FFIEC) there is renewed conversation about knowledge based authentication. I think this is a good thing.  It brings back into the forefront some of the things we have discussed for a while, like the difference between secret questions and dynamic knowledge based authentication, or the importance of risk based authentication. What does the new FFIEC guidance say about KBA?  Acknowledging that many institutions use challenge questions, the FFIEC guidance highlights that the implementation of challenge questions can greatly impact efficacy of its usefulness. Chances are you already know this.  Of greater importance, though, is the fact that the FFIEC guidelines caution on the use of less sophisticated systems and information that can be easily guessed or obtained from an Internet search, given the amount of information available.    As mentioned above, the FFIEC guidelines call for questions that “do not rely on information that is often publicly available,” recommending instead a broad range of data assets on which to base questions.  This is an area knowledge based authentication users should review carefully.  At this point in time it is perfectly appropriate to ask, “Does my KBA provider rely on data that is publicly sourced”  If you aren’t sure, ask for and review data sources.  At a minimum, you want to look for the following in your KBA provider:     ·         Questions!  Diverse questions from broad data categories, including credit and noncredit assets ·         Consumer question performance as one of the elements within an overall risk-based decisioning policy ·         Robust performance monitoring.  Monitor against established key performance indicators and do it often ·         Create a process to rotate questions and adjust access parameters and velocity limits.  Keep fraudsters guessing! ·         Use the resources that are available to you.  Experian has compiled information that you might find helpful: www.experian.com/ffiec Finally, I think the release of the new FFIEC guidelines may have made some people wonder if this is the end of KBA.  I think the answer is a resounding “No.”  Not only do the FFIEC guidelines support the continued use of knowledge based authentication, recent research suggests that KBA is the authentication tool identified as most effective by consumers.  Where I would draw caution is when research doesn’t distinguish between “secret questions” and dynamic knowledge based authentication, which we all know is very different.   

The rash of large-scale data breaches in the news begs many questions, one of which is this: how do hackers select their victims?

As I’m sure you are aware, the Federal Financial Institutions Examination Council (FFIEC) recently released its, "Supplement to Authentication in an Internet Banking Environment" guiding financial institutions to mitigate risk using a variety of processes and technologies as part of a multi-layered approach. In light of this updated mandate, businesses need to move beyond simple challenge and response questions to more complex out-of-wallet authentication.  Additionally, those incorporating device identification should look to more sophisticated technologies well beyond traditional IP address verification alone. Recently, I contribute to an article on how these new guidelines might affect your institution.  Check it out here, in full:  http://ffiec.bankinfosecurity.com/articles.php?art_id=3932 For more on what the FFIEC guidelines mean to you, check out these resources - which also gives you access to a recent Webinar.

The high-profile data breaches in recent months not only left millions of consumers vulnerable to the threat of identity theft and caused businesses to incur significant costs, but it also brought data security to the top of the agenda in Washington. In Congress, members of both the House and the Senate have used the recent data breaches to demonstrate the need for a uniform national data breach notification standard and increased data security standards for companies that collect consumer information. Hearings have been held on the issue and it is expected that legislation will be introduced this summer.At the same time, the Obama Administration continues to call for greater data security standards. The White House released its highly anticipated cybersecurity initiative in May. In addition to implementing a national data breach notification law, the proposal would require certain private companies to develop detailed plans to safeguard consumer data.As legislation develops and advances through multiple Congressional committees, Experian will be working with allies and coalitions to ensure that the data security standards established under the Gramm-Leach-Bliley Act and the Fair Credit Reporting Act are not superseded with new, onerous and potentially ineffective mandates.We welcome your questions and comments below.

Lately there has been a lot of press about breaches and hacking of user credentials.  I thought it might be a good time to pause and distinguish between authentication credentials and identity elements. Identity elements are generally those bits of meta data related to an individual.  Things like: name, address, date of birth, Social Security Number, height, eye color, etc.  Identity elements are typically used as one part of the authentication process to verify an individual’s identity.  Credentials are typically the keys to a system that are granted after someone’s identity elements have been authenticated.  Credentials then stand in place of the identity elements and are used to access systems. When credentials are compromised, there is risk of account takeover by fraudsters with mal intent.  That’s why it’s a good idea to layer-in risk based authentication techniques along with credential access for all businesses.  But for financial institutions, the case is clear: a multi-layered approach is a necessity.  You only need to review the FFIEC Guidance of Authentication in an Internet Banking Environment to confirm this fact.  Boiled down to its essence, the latest guidance issued by the FFIEC is rather simple. Essentially it’s asking U.S. financial institutions to mitigate risk using a variety of processes and technologies, employed in a layered approach. More specifically, it asks those businesses to move beyond simple device identification — such as IP address checks, static cookies and challenge questions derived from customer enrollment information — to more complex device intelligence and more complex out-of-wallet identity verification procedures. In the world of online security, experience is critical.  Layered together, Experian’s authentication capabilities (including device intelligence from 41st Parameter, out-of-wallet questions and analytics) offers a more comprehensive approach to meeting and exceeding the FFIEC’s most recent guidance. More importantly, they offer the most effective and efficient means to mitigating risk in online environments, ensuring a positive customer experience and have been market-tested in the most challenging financial services applications.

By: Kennis Wong On the surface, it’s not difficult to define existing account fraud. Obviously, it is fraud perpetrated against an existing account. But the way I see it, existing account fraud can be broken down into four types. The first type is account takeover fraud, which is what most organizations think as the de facto existing account fraud. This is when a real consumer using his or her own identity to open a legitimate account, but the account later on get taken over by an identity fraudster. The idea is that when the account was first established, it was created by the rightful person. But somewhere along the way, the account and identity information were compromised.  The fraudster uses the compromised information to engineer their way into the account. The second type is impersonation. Impersonation is somewhat similar to account takeover in the sense that it is also misusing the victim’s account. But the difference is that impersonation is more of a one or few times misuses of the account. Examples are a fraudulent use of a credit card or wire transfer. These are the obvious categories. But I think we should also think about these other categories. My definition of existing account fraud also includes this third type – identity fraud that was undetected during application. In other words, an account is established based on stolen identity.  Many organizations call this “new account fraud”, which I don’t have a problem with. But I think it’s really also existing account fraud, because –  is this existing account? The answer is yes. Is this fraud? Absolutely. It’s not that difficult, is it? Similarly, I am including first-party fraud in existing account fraud as well. A consumer can use his or her own identity to open an account, with an intention to default after the account is established. Example is bust out fraud. You see that this is an expanded definition of existing account fraud, because my focus is on detection. No matter at what point and how identity fraud comes in, it becomes an account in your organization, and that is where we need to discover the fraud. But at the end of the day, it’s not too important how to categorize or name the fraud - whether it's application fraud, existing account fraud, first party fraud or third party fraud, as long as organizations understand them enough and have a good way to detect them. Read more blog posts on existing account fraud.

The Communications Fraud Control Association’s annual meeting and educational event was held last week (June 14 – 16) at the Allerton hotel in Chicago, IL.   The Communications Fraud Control Association is made up of communications and security professionals, fraud investigators, analysts, and managers, law enforcement, those in risk management, and many others.   As an organization, they started out as a small group of communications professionals from the major long distance carriers who were looking for a better and more collaborative way to address communications fraud. Now, almost 30 years later, they’ve got over 60 members – a great representation of the industry yet still a nimble size. From what I hear, this makes for a specialized but quite effective “working” conference. Unfortunately I was not able to attend the conference but my colleague, Kennis Wong, attended and presented on the topic of Account Takeover and existing account fraud. It’s an area of fraud and compliance that Experian has spent some R&D on recently, with some interesting findings. In the past, we’ve been more focused on helping clients prevent new account and application fraud. It might seem like an interesting time to expand into this area, with some studies citing large drops in existing account fraud (2011 Identity Fraud Survey Report by Javelin).  BUT...consumer costs in this area are way UP, not to mention the headline-grabbing news stories about small business account takeover.  Which means it’s still a large pain point for financial institutions.   Experian’s research and development in existing account fraud, combined with our expertise in fraud scores and identity theft detection, has resulted in a new product which is launching at the end of this month: Precise ID for Customer Management. Stay tuned for more exciting details.

Whether you call it small business, commercial, or corporate account takeover, this form of existing account fraud has been in the headlines lately and seems to be on the rise. While account takeover happens to individual consumers quite frequently, it’s the sensational loss amounts and the legal battles between companies and their banks that are causing this form of commercial fraud to make the news. A recent BankInfoSecurity.com article, Fraud Verdict: Opinions Vary, is about a court opinion on a high profile ACH fraud case - Experi-Metal Inc. vs. Comerica Bank – that cites a number of examples of corporate account takeover cases with substantial losses: ·         Village View Escrow of Redondo Beach, Calif.:  lost $465,000 to an online hack ·         Hillary Machinery: settled with its bank for undisclosed terms in 2010. ·         The Catholic Diocese of Des Moines, Iowa:  lost $600,000 in fraudulent ACH transactions. I was curious what information was out there and publicly available to help businesses protect themselves and minimize fraud losses / risk. NACHA, the electronics payment association, had some of the best resources on their website.  Labeled the  “Corporate Account Takeover Resource Center”, it has a wide variety of briefs, papers, and recommendations documents including prevention practices for companies, financial institutions, and third-party service providers. There’s even a podcast on how to fight ACH fraud!  One thing was interesting to note, though. NACHA makes a point to distinguish between ACH fraud and corporate account takeover in this statement at the top of the web page: Corporate Account Takeover is a form of corporate identity theft where a business’ online credentials are stolen by malware. Criminal entities can then initiate fraudulent banking activity. Corporate Account Takeover involves compromised identity credentials and is not about compromises to the wire system or ACH Network. ACH fraud and wire fraud, terms mistakenly used to describe this type of criminal activity, are a misnomer. The ACH Network is safe and secure. Mostly I agree –the ACH Network is safe and secure. But from an F.I.'s or company’s perspective, corporate account takeover and ACH Fraud often go hand in hand.

High-profile data breaches are back in the headlines as businesses—including many in the communications sector—fall prey to a growing number of cyberattacks. So far this year, 251 public notifications of data breaches have been reported according to the Privacy Rights Clearinghouse. The latest attack comes on the heels of the Obama administration’s recent proposal to replace conflicting state laws with a uniform standard. The idea is not a new one—national breach notification legislation has been in discussion on Capitol Hill since 2007. With the addition of the White House proposal, three data breach notification bills are now under consideration. But rather than waiting for passage of a new law, communications companies and businesses in general should be aware of the issues and take steps to prepare. Replacing 48 laws with one Currently, notification standards differ on a state-by-state basis: 46 states, plus the District of Columbia and Puerto Rico each enforce their own standards. The many varying laws make compliance confusing and expensive. While getting to a single standard sounds like a good idea, finding a single solution becomes difficult when there are 48 different laws to reconcile. The challenge is to craft a uniform national law that preempts state laws, while providing adequate consumer protection. Five things to look for in a National Breach Notification Law Passing a single law will be an uphill battle. In the meantime, these are some of the issues that will need to be resolved before a national breach standard can be enacted: What types of personal information should be protected? First and last name + other info (e.g. bank account number) What should be classified as “personal” information? Email addresses and user names Health and medical information (California now includes this) What qualifies as a breach and what are the triggers for notification? What information should be included in a breach notice? How soon after a breach should notification be sent? Some states require notices be sent within a set number of days, others ASAP. Potential penalties What could happen if a company doesn’t comply with the proposed laws? Under the White House bill, fines would be limited to $1,000/day, with a $1 million cap. The two bills in House would impose penalties of $11,000/day, maxing out at $5 million. How to prepare before a national standard is passed Although the timing for passage is uncertain, communications companies need not wait for a national law to pass before taking action. Put a plan in place instead of sorting through 48 different laws. Preparation can be as simple as making a phone call to your Experian rep about our data breach protection services. Having managed over 2,300 data breach events, Experian can help you effectively mitigate loss. In addition to following updates on this page, you can also stay informed about the progress of pending data breach legislation by following the Data Breach Blog. Share your thoughts and concerns on the current proposals by leaving a comment. For further reading on this subject:   Experian Data Breach Blog   State Security Breach Notification Laws     Obama Administration Proposal: Law Enforcement Provisions Related to Computer Security (pdf of the full bill)     Obama national breach notification proposal: Good news, bad news for firms     2011 Data Breach Investigations Report (PDF)

At Experian’s recent client conference, Vision 2011, there was a refreshing amount of positive discussion and outlook on origination rates and acquisition strategies for growth. This was coming not only from industry analysts participating in the conference but from clients as well. As a consumer, I’d sensed the ‘cautious optimism’ that we keep hearing about because my mailbox(the ‘original’ one, not email) has slowly been getting more and more credit card offer letters over the last 6 months.   Does this mean a return to prospecting and ultimately growth for financial institutions and lenders? It’s a glimmer of hope, for sure, although most agree that we’re a long way from being out of the woods, particularly with unemployment rates still high and the housing market in dire shape. Soooo…..you may be wondering where I’m going with this…. Since my job is to support banks, lenders, utilities and numerous other businesses’ in their fraud prevention and compliance efforts, where my mind goes is: how does a return to growth – even slight – impact fraud trends and our clients’ risk management policies? While many factors remain to be seen, here are a few early observations: ·         Account takeover, bust out fraud, and other types of existing account fraud had been on the rise while application fraud had declined or stayed the same (relative to the decrease in new originations); with prospecting and acquisition activity starting to increase, we will likely see a resurgence in new account fraud attempts and methods. ·         Financial institutions and consumers are under increasing risk of malware attacks; with more sophisticated malware technology popping up every day, this will likely be a prime means for fraudsters to commit identity theft and exploit potentially easier new account opening policies. ·         With fraud loss numbers flat or down, the contracted fraud budgets and delayed technology investments by companies over the last few years are a point of vulnerability, especially if the acquisition growth rate jumps substantially.  

By: Kennis Wong  Data is the very core of fraud detection. We are constantly seeking new and mining existing data sources that give us more insights into consumers’ fraud and identity theft risk. Here is a way to categorize the various data sources. Account level - When organizations detect fraud, naturally they leverage the data in-house. This type of data is usually from the individual account activities such as transactions, payments, locations or types of purchases, etc. For example, if there’s a purchase $5000 at a dry cleaner, the transaction itself is suspicious enough to raise a red flag. Customer level - Most of the times we want to see a bigger picture than only at the account level. If the customer also has other accounts with the organization, we want to see the status of those accounts as well. It’s not only important from a fraud detection perspective, but it’s also important from a customer relationship management perspective. Consumer level - As Experian Decision Analytics’ clients can attest, sometimes it’s not sufficient to look only at the data within an organization but also to look at all the financial relationships of the consumer. For example, in the situation of bust out fraud or first-party fraud, if you only look at the individual account, it wouldn’t be clear whether a consumer has truly committed the fraud. But when you look at the behavior of all the financial relationships, then the picture becomes clear. Identity level - Fraud detection can go into the identity level. What I mean is that we can tie a consumer’s individual identity elements with those of other consumers to discover hidden inconsistencies and relationships. For example, we can observe the use of the same SSN across different applications and see if the phones or addresses are the same. In the account management environment, when detecting existing account fraud or account takeover, this level of linkage is very useful as more data becomes available after the account is open. Loading...