While consumer credit has become an essential pillar of the modern economy, the fraud associated with this sector has also proliferated. From identity fraud to the manipulation of financial information, the methods used by fraudsters to obtain unwarranted consumer credit are increasingly sophisticated and often difficult to detect. How do people go about committing consumer credit fraud? What are the consequences for your banking institution? And how do you deal with it? We take a look together.
What is consumer credit?
Consumer credit: definition
Consumer credit is a loan granted by a financial institution for non-business purposes. This type of credit is generally used to finance the purchase of consumer goods such as furniture, IT equipment or vehicles.
The amount of consumer credit fluctuates between €200 and €75,000depending on what the consumer wants.
There are several different types of consumer credit.
On the one hand, credit can be " assigned" i.e. it is intended to the purchase of a specific propertydetermined at the time the contract is taken out. In this case, the amount of credit obtained must be used exclusively to pay for the goods in question.
| For example, Louis only wants to buy a car. He will then take out an "earmarked" loan, which he will use only to obtain the vehicle. |
On the other hand, credit can be " unaffected" . In this case, the borrower has the right to freedom to use the money as they see fitWhether for the purchase of consumer goods or for any other type of service.
| For example, if Louise wants to take out a loan to buy an electrical appliance, she can choose the "unallocated credit" option so that she is free to use the amount provided. |
How does consumer credit work?
The rules governing consumer credit agreements are defined by the Consumer Code.
Generally speaking, consumer credit works quite simply. The borrower makes monthly repayments to pay off the loan and the associated interest.
The total cost of consumer credit depends on two variables main :
- THE interest rate received
- There repayment period of the loan
👀 Good to know :
The interest rate on consumer credit (or Annual Percentage Rate) may vary depending on the financial institution with which the borrower takes out the loan. However, it is capped by a maximum rate, also known as the usury rate.
What is consumer credit fraud?
Consumer credit fraud refers to any fraudulent activity linked to obtaining or using credit for personal purposes.
In practical terms, consumer credit fraud can be committed in a number of ways:
- L'fraudulent use of a person's identity to obtain credit
- There submitting false information when applying for credit
- L'fraudulent use of credit cards or credit accounts to make purchases
Let's take an example to make it easier to understand!
Let's assume that Charles is a malicious person who wants to obtain a personal loan. To do this, he creates false income documents such as falsified payslips, altered bank statements or even false tax returns. Through these false documents, they give the impression that they have a higher income than is actually the case. They are therefore more likely to obtain a loan because financial institutions have confidence in their ability to repay.
As well as increasing his chances of getting a loan, Charles also increases his chances of getting a lower interest rate and therefore paying less!
In this example, the document fraud consists of falsifying financial documents in order to deceive the lender and obtain an undue financial advantage.
To find out more about bank fraud, read our dedicated article : bank fraud, definition and issues
How can I protect myself against consumer credit fraud?
Strengthening identity verification procedures
Financial institutions already implement identity verification procedures when applying for credit. To guard against document fraud, financial institutions can also step up their checks.
How can I do this? Banks can ask for additional documents including identity papers, 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 applicants. These databases may include information on customers' financial history, credit history or previous addresses. By comparing the information provided by the applicant with that in these databases, financial institutions can more easily detect inconsistencies.
Raising awareness and training staff
It is essential that the staff of financial institutions be trained to recognise the signs of fraud and knowledge what to do if you suspect.
By making their staff aware of the various fraud techniques and providing them with the necessary 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 how to prevent bank fraud, we have written an article on the subject, so now's the time to take a look: What are the risks and consequences of bank fraud?
Use fraud detection tools
Financial institutions can, and indeed must, invest in advanced technological tools designed to detect fraudulent activity.
These tools often use sophisticated algorithms to analyse customer behaviour patterns and identify anomalies or warning signs of potential fraud.
At Finovox, we offer a solution for detecting false documents in two forms:
- Our API solution allows you to receive information via JSON documents, making it easy to integrate into your systems.
- With our SaaS solutionYou can examine the documents in detail and obtain explanations of any changes.
These two solutions are designed to complement each other, ensuring rapid and effective deployment. All with one common objective: to combat document fraud!
Interested in our solution? Contact our experts to find out more.
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