How People Commit Credit Card Fraud (And Why You Accidentally Trigger Alerts)

After writing recently about legislation in New York where banks have to let you redeem your accumulated points even if they decided to close your account, I wound up having several conversations with readers about the kinds of activities that look risky to a bank and may make them decide they don’t want your business anymore.

Three years ago, at a credit card industry conference, I spoke at a presentation by Steve Lenderman, Fraud Operations Lead for Paypal, who spoke about how people commit fraud against financial institutions. He explained that having a lot of authorized users can look like fraud. When bad actors do things that are done by the rest of us, it looks suspicious.

Synthetic identities are easier to create than most people think. New identities are created using a combination of real data and fake information.

• Social security numbers are easy for people who know what they’re doing. Prior to 2008 social security numbers weren’t randomized, and there’s still an algorithm used to create these numbers.
• Social security numbers that get targeted most are ones infrequently used — those of children and the elderly — he recommends freezing the credit file of your children.
• Everyone’s data is out there. Using social security numbers, dates of birth, and mother’s middle name for validation has become worthless, after the Equifax breach but even before.

A phantom borrowers is born. The scam artist creates a fake identity, gets a fake ID, and uses it to commit crimes. They go into a store and get a credit card at the register. The clerk at the store is not looking for fraudulent activity.

• Applying creates a credit file.
• They’re probably turned down for credit.
• They go back 2 or 3 times to different issuers and do that again. Now there’s more data in the file.
• Eventually a bank will approve with a small limit. That bank has a limited risk (because of the small limit) but the ‘person’ now exists.

There are a lot of easy cards. The person is marketed to get more cards.

The identity itself is worth more than the credit lines, so they don’t go spend the $500. Their credit lines increase as bills get paid.