Fraud Update: The 13 Hottest Schemes You Need to Prevent

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The fraud fight is getting nastier by the minute, say experts familiar with the new schemes - and some old ones with new wrinkles -- being perpetrated by criminals against financial institutions and their customers. Here are 13 of the most prevalent ruses.

#1 -- Credit Bust-Out Schemes

By definition, credit bust-out schemes are a combination of a credit and fraud problem, although many organizations are not always sure where the losses sit - or who might be the party responsible. How it works: According to Michael Smith, manager of the Fraud and Market Planning division at Lexis Nexis, consumers apply for credit from lenders using similar last names, oftentimes Eastern European or Balkan, in an intentional effort to capture financial access vehicles to cause delinquency.

What makes credit bust-outs especially difficult to prevent is that many of the applications have consumers with low credit risk ratings, "so these people tend to look relatively good from the start," Smith explains. These individuals make good payments on time, ask to increase their credit line and seem legitimate, however throughout the entire process they are thinking about how much money they can get from this bank before they 'bust out' and go delinquent.

The length of the fraud usually falls between six and 18 months. "This fraud is one of the biggest reasons bank are writing off losses," Smith argues. It is the most problematic and emerging issue with fraud today -- "even more so than true-name identity fraud, and is an issue that has increasingly hampered the industry over the past few years and one that is arduous to prevent, detect, and quantify," Smith says.

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#2 -- Customer Loan Account Takeover

This type of fraud occurs online, and a recent case study related by Avivah Litan, distinguished analyst at Gartner Group illustrates how customer loan account takeover happens. The case resulted in a $71,000 theft from a customer's loan account.

An online loan Web site gave a customer the ability to open demand deposit accounts (DDA), Litan explains, which were to be held as savings accounts that could only be opened and accessed via the Internet. "To open the account through the online loan application, a customer needed an existing relationship with another bank," Litan says. The customer would provide all the account information necessary for both banks to complete ACH transfers.

Prior to opening the account, the online loan application system would complete two test transactions and require the potential customer to confirm the exact dates and amounts of the transactions. "If the customer could not provide that confirmation, then it was thought to be attempted fraud, and the account relationships would be closed."

Once accounts were opened, a customer was able to transfer funds between the two accounts via ACH transfers. Fraud in this account was able to take place because, after the initial account was opened and deposits were made, the customer was allowed to change the external bank account and continue to transfer funds.

Although the online loan system could verify control of external accounts, actual account ownership could not be confirmed. "The thief took advantage of this by taking over the customer's account and changing the external account it was linked to, even though the names of the account owners at the external financial institutions were no longer the same," Litan says. The crook was able to do this by using various ploys across customer channels. The criminal also compromised other accounts at the loan company, as was later determined by examining IP addresses that were accessing various accounts.

#3 -- Corporate Account Takeovers

Corporate account takeovers are becoming more prevalent says Gartner's Litan. "Corporate banks are reporting that criminals are targeting their cash management customers and moving money out of their accounts via innocent consumer accounts," she says. The owners fall for phishing e-mails that promise lucrative commissions for participating in the schemes.