Types of Identity Theft: Application Fraud

Today, identity theft has become an increasingly larger and more complicated problem than ever before. Where once, people knew everyone in their town, more and more we must rely on insecure identifiers, such as drivers licenses and social security numbers, which makes it much easier to commit identity theft.

Application fraud is one of the more sophisticated types of identity theft, which involves a criminal first gathering a portfolio of identifiers, such as social security numbers, birth certificates, utility bills, and drivers licenses. They then use these identifiers to open new lines of credit or apply for loans. Once approved, they withdraw the money and never use the cards again, which can sometimes go for sometime without being caught.

Application fraud is very serious, because the criminal is not using the same credit card at the same time as the victim, such as is the case with account takeover. As a result, it is not usually detected as quickly, because it requires that the victim check their credit report, which many do not do at all.

Application fraud is made even easier by the reliance of most financial institutions on identifiers that were never intended to prove identity and are therefore not secure at all. For instance, a utility bill is easy to obtain through social engineering or simply by stealing mail. Birth certificates are equally easy to obtain, with some states not even requiring any sort of ID. As a result, it is very easy to obtain a portfolio of personal identifiers.

Some Advantages of Application Fraud

  • Usually the amount of money gained during this type of identity theft is rather large.
  • This type of fraud lasts much longer, because it is not happing on the same credit line as the victim is using.
  • The criminal can reuse the information, even once caught, although at a much higher risk. As a result, even after discovery, the victims identity is still valuable to the criminal.

Some disadvantage of Application Fraud

  • Since the accounts are new lines of credit, the criminal must go through the entire application process.
  • Since a larger amount of money is taken and there is a much larger stake, it is more likely to attract the attention of serious law enforcement, such as the FBI, SBI, or Homeland Security.
  • As time goes on, the risk of being caught increases.

The Patriot Act's Effect on Application Fraud

The Patriot Act, which offers widespread breaches of our constitutional rights, under the guise of protecting us from terrorists, does include some provisions to make it harder to obtain accounts.

For example, under the patriot act:

  • Banks must make an effort to verify the identity of people opening accounts.
  • The information used to verify identity must be kept on record.
  • The bank must check a list of known 'terrorists' against the names used to open the account.

Of course in practice, these methods are not all that effective. A drivers license or passport is usually all that is required, which is easy enough to obtain. For those without these identifiers, most banks will also accept a previous banks banking statement, employers ID Badge, school id, or even an expired drivers licenses, providing a utility bill is also available.

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