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.

By: Kari Michel The topic of strategic default has been a hot topic for the media as far back as 2009 and continues as this problem won’t really go away until home prices climb and stay there. Terry Stockman (not his real name) earns a handsome income, maintains a high credit score and owns several residential properties. They include the Southern California home where he has lived since 2007. Terry is now angling to buy the foreclosed home across the street. What’s so unusual about this? Terry hasn’t made a mortgage payment on his own home for more than six months. With prices now at 2003 levels, his house is worth only about one-half of what he paid for it. Although he isn’t paying his mortgage loan, Terry is current with his other debt payments.   Terry is a strategic defaulter — and he isn’t alone. By the end of 2008, a record  1 in 5 mortgages at least 60 days past due was a strategic default. Since 2008, strategic defaults have fallen below that percentage in every quarter through the second quarter of 2010, the most recent quarter for which figures are available. However, the percentages are still high: 16% in the last quarter of 2009 and 17% in the second quarter of last year. Get more details off of our 2011 Strategic Default Report What does this mean for lenders? Mortgage lenders need to be able to identify strategic defaulters in order to best employ their resources and set different strategies for consumers who have defaulted on their loans. Specifically designed indicators help lenders identify suspected strategic default behavior as early as possible and can be used to prioritize account management or collections workflow queues for better treatment strategies. They also can be used in prospecting and account acquisition strategies to better understand payment behavior prior to extending an offer. Here is a white paper I thought you might find helpful.

When the Consumer Financial Protection Bureau (CFPB) takes authority on July 21, debt collectors and communications companies should pay close attention. If the CFPB has its way, the rules may be changing. Old laws, new technologies The rules governing consumer communications for debt collection haven’t seen a major update since they were written in 1977. While the FTC has enforcement power in this area, it can’t write rules—Congress must provide direction. Consequently, the rules guiding the debt collection industry have evolved based on decisions by the courts. In the meantime, technology has outpaced the law. Debt collectors have taken advantage of the latest available methods of communication, such as cell phones, autodialers and email, while the compliance requirements have largely remained murky. At the same time, complaints about debt collection practices to the FTC continue to rise. While the number is relatively low compared to the amount of overall activity, the FTC receives more complaints about debt collectors than any other industry. The agency has also raised concerns about how new communication tools, such as Facebook and Twitter, will impact the future of debt collection. Priorities for the CFPB While mortgages, credit cards and payday loans will be the early priorities for the CFPB, high on the list of to-do items will be to update the laws governing consumer communications for debt collection. Under the Dodd-Frank Act, the CFPB will be responsible not only for enforcing the Fair Debt Collection Practices Act (FDCPA), but it will also have a new ability to write the rules. This raises new issues, such as how new regulations will affect how debt collection companies can contact consumers. Even as lenders and communications companies have expressed concern about the CFPB writing the rules, the hope is that the agency will create a more predictable legal structure that covers new technologies and reduces the uncertainty around compliance. Faced with the prospect of clarifying the compliance requirements around debt collection, the ACA (Association of Collection and Credit Professionals) has started to get in front of the CFPB by putting together its own blueprint. Will the CFPB be ready by July 21? Over the last year, the CFPB has been busy building an organizational structure but still lacks a leader appointed by the President and confirmed by the Senate. (Elizabeth Warren is currently the unofficial director.) Without a permanent director in place, the agency will be unable to gain full regulatory authority on July 21 – the date set by the Treasury Department. Until then, the CFPB will be able to enforce existing laws but will be unable to write new regulations. Despite the political uncertainty, debt collectors and communications firms still need to be prepared. One way is to ensure you’re following industry best practices established by ACA. To help you be ready for any outcome, we’ll continue to follow this issue and keep you apprised of the CFPB’s direction. Let us know your thoughts and concerns in the comment section. Or feel free to contact your Experian rep directly with any questions you may have. Helpful links: Association of Credit and Collection Professionals Fair Debt Collection Practices Act (PDF) Consumer Financial Protection Bureau (CFPB)