With ID fraud rapidly on the increase and becoming more sophisticated, Chris Taylor investigates the industry’s attempts to get tough on the fraudsters
The recent news that police in Scotland are investigating at least two cases of identity (ID) theft that allowed people to obtain a mortgage fraudulently from the same lender should come as no surprise. ID theft has become a fast-growing industry in the UK.
Almost 120,000 people were victims of ID fraud in 2004 according to recent figures from the Credit Industry Fraud Avoidance Service (CIFAS), a staggering increase of 600 per cent over the last five years.
The Cabinet Office estimates the total cost to the UK economy is in the region of £2.1 billion each year. The British Bankers Association reported that members lost £107.6 million in 2004 to fraud, an increase of 11 per cent from 2003.
Direct mail and the increasing use of the internet have unwittingly played into the hands of criminals, helping them to ‘hijack’ someone else’s identity. While stealing the identity of a living person is not a crime, when a fraud is committed it is an arrestable offence – but the criminals don’t stop there.
The nastiest – albeit more difficult – form of ID theft is defrauding the dead. When the names of the tsunami victims were listed on TV and in print seven months ago, crooks immediately started using the details for ID thefts.
Of the two mortgage fraud cases that have just come to light in Scotland, a couple took the identities of an elderly deceased couple to obtain a mortgage worth £200,000.
ID verification
This is clearly a worrying situation for those of us involved in the mortgage industry. All financial services companies must carry out identity verification to comply with FSA guidelines, the European Anti-Money Laundering Directive and the Proceeds of Crime Act. But the very act of ID verification can in itself lead to ID fraud.
Ceri Evans, sales director at the Black & White Group, believes there is an urgent need to improve current processes: “The customer only really cares about getting their mortgage and isn’t interested in the demands of lenders, insurers and conveyancers for proof that the borrower is the person they claim to be. Brokers have to manage their customers’ expectations and that can be challenging given the different touch points in the current process.”
The current procedure, which mainly revolves around certified copies of certain key documents being sent via recorded post, also doesn’t take into account some of the borrowers taking their first tentative steps onto the property ladder through right-to-buy and shared-ownership schemes.
Customer struggle
“Some of our customers simply don’t have some of the proofs of ID that we’re asked to provide for lenders,” says Evans. “There are more
and more extreme situations where the broker will be struggling to help their customer and it isn’t just a case of encouraging that client to fork out £70 for a fast-track passport. For many, that £70 could be their weekly food budget for their family.
“There is an urgent need to streamline the current process and also to provide other secure methods of proof of identity so that we can do the best job for our customers, protecting both their interests and those of the lender.”
Carl Higgins, compliance director at the Black & White Group, agrees: “Our customers entrust us with valuable documents for months at a time in some cases and we owe them a duty of care to protect them through the process.
Equally, we have to ensure that the requirements of all parties in the process are satisfied. With the amount of checks required by third-parties and the amount of people involved along the way, there are simply too many chances for something to go wrong. I would
not like to give the current system a quality score. An electronic system that cuts out the manual stages and reduces the opportunity for error and fraud can only be good for the customer, speeding up and simplifying the whole application process, and improving both customer and market confidence.”
Reasons for optimism
There is some light at the end of the tunnel. Organisations such as the GB Group argue that by tackling ID verification at the point of application, it is possible to pick up over 90 per cent of fraudsters before they ever get near any money.
Electronic ID verification solutions access a range of personal data to verify that the information being given in the customer application is valid, therefore protecting the good customers and eliminating the bad. The checks are rigorous enough to pick up even the most sophisticated fraudster, without affecting the genuinely good customer.
Partnering with GB Group, we are in the final stages of developing a new ID verification system which electronically checks data using over 50 data sources.
We tested the two fraudulent mortgage applications in Scotland with this new system and on the first case discovered that the borrowers were deceased and that the driving licence was a fake. On the second, it was clear that the driving licence was a forgery.
Speeding up and simplifying the ID verification process will be music to the ears of brokers and lenders alike. Delays in processing applications are the biggest cause of abortive cases and while it’s in the interests of all parties to verify identities, a system that can get business on the books quickly and securely would have to be good for the industry.
Chris Taylor is sales and client services director at London & European
