While consumer credit has become an essential pillar of the modern economy, fraud associated with this sector has also proliferated. From identity fraud to the manipulation of financial information, the methods used by fraudsters to obtain undue consumer credit are becoming more and more sophisticated and often difficult to detect. How do individuals go about carrying out consumer credit fraud? What are the consequences for your banking institution? How to deal with it? We take stock together.
Consumer credit is a loan granted by a financial institution for non-professional purposes. This type of credit is generally used to finance the acquisition of consumer goods, in particular furniture, computer equipment or even vehicles.
The amount of consumer credit fluctuates between €200 and €75,000, according to the good desired by the consumer.
Note that there are several types of consumer credit.
On the one hand, credit can be”Affected“, that is, it is intended for the purchase of a specific property, determined at the time the contract was signed. In this case, the amount of credit obtained must be used exclusively for the payment of the property concerned.
For example, Louis wants to exclusively buy a car. He will then take out an “assigned” loan that will only be used to obtain this vehicle.
On the other hand, credit may be”unaffected“. In this case, the borrower has the freedom to use the amount loaned as they see fit, whether for the acquisition of consumer goods or for any other type of service.
For example, if Louise wants to take out a loan to buy household appliances, she can choose the “unallocated credit” option in order to be free to use the amount provided.
The rules concerning consumer credit contracts are defined by the Consumer code.
Overall, the functioning of a consumer credit is quite simple. The borrower makes repayments each month that allow him to pay the amount of his loan and the associated interests.
The total cost of consumer credit depends on two variables main ones:
👀 Good to know:
The interest rate on a consumer credit (or Global Effective Annual Rate) may vary depending on the financial institution from which the borrower contracts the loan. However, it is capped by a maximum rate, also known as the wear rate.
Consumer credit fraud refers to any fraudulent activity related to obtaining or using credit for personal purposes.
Concretely, consumer credit fraud can take place through various means, including:
Let's take an example to make it easier to understand!
Let's say Charles is a malicious person who wants to get a personal loan. To do this, it creates fake income documents such as forged pay slips, amended bank statements, or even false tax returns. Through these false papers, he gives the impression that he has higher incomes than reality. He is therefore more likely to obtain a loan because financial institutions are confident in his ability to repay.
In addition to increasing his chances of getting a loan, Charles also increases his probability of acquiring a lower interest rate and therefore paying less!
In this example, the document fraud involves falsifying financial documents in order to deceive the lender and gain an undue financial advantage.
To find out more about bank fraud, read our dedicated article: bank fraud, definition and challenges
Financial institutions are already implementing identity verification procedures when applying for credit. In order to protect themselves against document fraud, financial institutions can also strengthen their controls.
How? Banks can ask for additional documents including identity documents, recent bank statements or proof of additional income to verify the identity of applicants.
At the same time, financial institutions can use external databases to verify the information provided by the applicants. These databases may include information on customers' financial history, credit history, and previous addresses. By comparing the information provided by the applicant with that in these databases, financial institutions can more easily detect inconsistencies.
It is essential that the staff of financial institutions be trained to recognize signs of fraud and know How to react in case of suspicion.
By making their staff aware of the various fraud techniques and by providing them with clear protocols to follow in the event of an incident, financial institutions can strengthen their ability to prevent and manage consumer credit fraud.
To find out more about ways to prevent bank fraud, we've written an article on the subject, it's time to take a look at it: Bank fraud, what are the risks and consequences?
Financial institutions can, or should, invest in advanced technological tools designed to detect fraudulent activity.
These tools often use sophisticated algorithms to analyze customer behavior patterns and identify anomalies or warning signs of potential fraud.
At Finovox, we offer a solution for detecting false documents in two forms:
These two solutions are designed to complement each other, ensuring rapid and efficient deployment. All with a common objective, to fight against document fraud!
Interested in our solution? Contact our experts to find out more.
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