The Fraud Report July 2009

Contents 1.

Introduction

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2.

Key findings

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3.

Fraud watch

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3.1

Fraud rates

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3.2

How fraud is discovered

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3.3

Modus operandi

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4.

The victims

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4.1

Most likely victims

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4.2

Top 10 FSS consumer types most at risk from identity fraud

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4.3

The UK’s identity fraud hotspots

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4.3.1

Risk tables

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4.3.2

Experian identity fraud risk map of UK

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The Fraud Report

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1. Introduction Experian’s work in the fraud arena Through the work of its Fraud and Identity Solutions business and its Victims of Fraud service, Experian has the broadest level of insight into identity fraud, how it is committed, the effect it has on the individuals and organisations concerned, and what can be done to mitigate the risk of becoming a victim. Since it was established in 2003, Experian’s Victims of Fraud service has helped more than 10,000 victims of identity fraud recover their identities. This dedicated team of experts provides free expert advice to help mend the damage caused by fraudsters, and by liaising with lenders, the team can help reduce the time and effort it takes for an individual to reclaim his or her identity. Experian’s Fraud and Identity Solutions business provides industry-leading fraud-prevention tools that help hundreds of the world’s leading financial institutions to identify and minimise their exposure to fraud. In the UK, eight of the top 10 banks, 17 of the top 25 mortgage providers and nine of the top 10 credit card companies use Experian as their preferred supplier of application fraud prevention tools. Experian works with the independent industry body National Hunter to run a fraud service across the financial services industry. From its work at the front line of fraud prevention and resolution Experian is well placed to spot the emerging trends.

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About Experian Experian is a global leader in providing information, analytical and marketing services to organisations and consumers to help manage the risk of commercial and financial decisions. Combining its unique information tools and deep understanding of individuals, markets and economies, Experian partners with organisations around the world to strengthen customer relationships and provide their businesses with competitive advantage. For consumers, Experian delivers critical information that enables them to make important financial and purchasing decisions with greater control and confidence. Clients include organisations from financial services, retail and catalogue, telecommunications, utilities, media, insurance, automotive, leisure, ecommerce, manufacturing, property and government sectors.

2. Key findings An increasingly sophisticated approach to fraud prevention by the credit and financial services industry has led to higher levels of fraud detection and prevention than ever before. In the UK alone, Experian helped to foil almost £1.1 billion worth of fraudulent credit applications in 2008 – 6 million more than in 2007 – as well as a significant increase in insurance fraud applications. The industry cannot afford to be complacent. Insight gained from Experian’s Fraud and Identity Solutions business and its Victims of Fraud service demonstrates that fraud continues to present a clear and present danger to lenders and consumers. The economic downturn has affected the nature of fraud, and while Experian is seeing increases in attempted frauds across the spectrum, some sectors are especially vulnerable. Attempted mortgage fraud has increased significantly in the last year alone. While the organised criminal element continues to operate in this area, much of the 35% increase in mortgage fraud attempts in 2008 is down to borrowers that would previously have qualified for ‘sub-prime’ loans or self certification. Increasing numbers within this group are falsifying, exaggerating or neglecting to include certain information attempting to access prime mortgage products.

Despite a drop of almost a third in mortgage applications, Experian prevented £944 million worth of mortgage fraud attempts in 2008, £66 million more than in 2007. With less mortgage finance available, organised fraudsters have increasingly targeted the automotive market. 3,812 automotive fraud attempts were detected during 2008, representing a 70% increase in activity in frauds as a percentage of applications made, with fraudsters attracted by high value assets that are easily convertible into cash. Despite a large increase in the percentage of automotive fraud activity, the overall financial value of attempts declined from £44 million to £31 million, as volumes of new car sales declined.

London remains the identity fraud capital of the UK, with residents almost four times as likely to fall victim to fraud than other residents across the UK. Kensington, the Victoria Street area, Clapham Junction and the King Street area of Hammersmith continue to be high-risk locations, with residents more than six times more likely to be targeted.

Experian’s analysis of identity fraud victims reveals that the typical victim is aged between 30 and 50. 55% of the identity fraud victims that contacted Experian for help in 2008 came from this age group. The statistics also show that fraudsters are broadening their base, seeking not only the highest value targets, but also increasingly attacking a younger and more transient population, often young professionals, living in rented accommodation. The analysis of fraud incidents reported to Experian in the second half of 2008 reveals that present address fraud continues to grow and is now the most commonly perpetrated method, representing 36% of all identity fraud reported by victims to Experian. A person uses the victim’s address to commit fraud – this could involve a family member, a tenant, shared mailboxes or some form of mail interception.

The Fraud Report

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3. Fraud watch 3.1 Fraud rates The amount of fraud attempted against financial institutions has been steadily increasing over the last 10 years. In the current crunch environment, fraud momentum has gathered pace as organised fraudsters seek new, lucrative opportunities, and increasing numbers of consumers are driven to commit soft-fraud attempting to maintain a lifestyle that is gradually slipping out of reach. In the mortgage market, whilst there is less being lent, significantly more fraud is being found. Through the National Hunter fraud-data-sharing scheme, Experian witnessed 4,940 attempted mortgage frauds in 2008, a 35% increase in the number of frauds as a proportion of applications compared to 2007. Experian systems helped to prevent more than £944 million worth of mortgage fraud attempts in 2008, a figure more than £66 million higher than the year before. Experian believes that much of this increase is first party fraud and is down to self certify and higher risk customers trying to manipulate their information in order to obtain prime channel mortgages. The organised criminal fraudster is branching out of the mortgage market due to the decreasing availability of credit and the increasing levels of checks being implemented by lenders. These fraudsters are chasing the capital, and are looking to other opportunities such as the automotive market.

Despite a significant decrease in new car sales the automotive sector has seen the biggest increase in attempted frauds. 3,821 attempts were detected during 2008, representing a 70% increase in fraud activity as a percentage of applications made, with fraudsters attracted by high value assets that are relatively easy to convert into cash. Also, the complex sales process involving dealers and third party finance providers means that fraudsters consider the automotive market to be an easier target than the retail banks, and are looking to capitalise on any vulnerability. This can include, but is not restricted to, collusion between dealership staff and fraudsters in order to meet sales targets. The insurance sector has also seen a big increase in attempted frauds. Experian foiled 8,947 fraudulent insurance claims in 2008. This represented a 44% year-on-year increase in the amount of insurance fraud activity witnessed by Experian. The credit card market however saw a drop in attempted frauds. Experian prevented 24,816 fraudulent applications for credit card during 2008, an absolute fall of 12% compared to the previous year. Fraudsters have changes their mode of attack in the credit card space.to Account Takeover with CIFAS figures showing a 207% rise in fraud with this modus operandi. Lower initial credit limits and tigher controls make application fraud less appealing than taking over an existing card with a large available credit limit.. The personal loans market saw a decline in detected fraud activity. The number of fraudulent loan applications detected in 2008 fell by 20% to 4,840, as fraudsters – deterred by the sophisticated fraud prevention tools now commonly used by providers – chose to target areas perceived to be more vulnerable.

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3.2 How fraud is discovered The majority of attempted identity frauds are prevented at the point of application; however there are those that slip through the net, and it is at this point that Experian’s dedicated Victims of Fraud service takes over and works to help reclaim the identities of consumers whose details have been misused by fraudsters to obtain credit. The most common way for victims to discover that identity theft has been perpetrated in their name continues to be through the monitoring of their credit reports. In 2008, of around 5,000 victims of identity fraud, 63% first discovered they had become a victim by noticing fraudulent activity on their credit report. The second most common way victims learnt that their identity had been compromised was on being contacted by the financial services company involved. 15% of victims discovered identity frauds this way in 2008.

3.3 Modus operandi Analysis of fraud incidents reported to Experian by victims in 2008 reveals that present address fraud continues to grow and is now the most commonly perpetrated method, representing 36% of identity fraud. Committed by someone at or using the victim’s address. Frauds of this nature can often involve a family member, a tenant, shared mailboxes or some form of mail interception. Forwarding address fraud declined to 29%.

Modus operandi graph The Modus operandi graph depicts the changes in fraud methodologies over the period 2003 – 2008.

Forwarding address and present address fraud both involve the victim’s current address, and require a greater degree of premeditation and a more sophisticated implementation than previous address fraud, which tends to be a more opportunistic crime. Previous address fraud, where the perpetrator uses victims’ names and previous addresses, accounts for 30% of cases. This method is typically more associated with the opportunistic fraudsters, who take advantage of credit arrangements or any credit histories that have been left at an individual’s previous address, and details have not been updated to reflect a change of address.

The Fraud Report

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4. The victims 4.1 Most likely victims By analysing the new cases of identity fraud reported to Experian by victims in 2008, Experian has been able to determine the demographics most likely to be targeted by fraudsters and pinpoint the UK’s identity fraud hotspots. Experian has allocated ‘risk scores’ that indicate how much more, or less, likely a group of people is to becoming victims of identity fraud. The average score is 100. A score of 200, therefore, indicates that the group concerned is twice as likely to become a victim compared to the average UK consumer. Experian’s analysis reveals that the typical identity fraud victim is aged between 30 and 50 – this age group represents 55% of all identity fraud victims. The statistics show that in 2008, fraudsters have shifted their focus away from high value individuals and started targeting victims living in rented accommodation, due to the vulnerability of their personal details where communal mail is delivered through one letterbox. While wealth and status can single out certain types for being targeted, those renting – either privately or from local authorities – are at high risk of becoming victims of identity fraud. Experian’s specialist consumer classification system, Financial Strategy Segments (FSS), identifies UK consumers and classifies them according to their financial behaviour, through FSS, Experian has been able to identify those consumer groups that are statistically more likely to become victims of identity fraud.

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Young people who live in mainly rented accommodation in major cities such as London or Glasgow those ‘Looking to the Future’ are most at risk, over twice as likely as the UK average to be targeted for identity fraud. Many work in professional occupations, although there are some who are self-employed and run their own businesses. Most live with partners or share accommodation and some of these families have young children. The second most at-risk category are young single people and home sharers who live in flats rented predominantly from the council or housing associations, called ‘Limited Livelihoods’. They work mainly in service industries and are concentrated in and around London. The incidence of unemployment is high in this group, overall earnings are relatively low and this category is almost twice as likely to be targeted for fraud than the average. With a risk score of 168, the ‘Up and Coming Elite’ also continues to be a riskier group than the average. These are young, single, wealthy people who live in fashionable areas of major metropolitan cities such as London and Edinburgh. With wellpaid, professional jobs, and renting high-value flats (either on their own or sharing with a partner or friends) they have both the wealth to attract the organised fraud element, and high-risk living arrangements.

4.2 Top 10 FSS consumer types most at risk from identity fraud Most at risk types (Index shows level of risk, 100 is UK average)

4.3 The UK’s identity fraud hotspots By analysing the types of people reporting to Experian that they had become victims in 2008, Experian has been able to identify the UK’s identity fraud hotspots – those areas that contain the highest proportions of at-risk residents. London remains the identity fraud capital of the UK, with residents almost four times as likely to fall victim compared to the average score across the UK. With a risk score of 638, Kensington continues to be an identity fraud hotspot, with residents – on average – over six times more likely to fall victim compared with the UK average. This is likely to be due to the high proportion of wealthy residents that attract the attentions of the career fraudster, and a high number of those living in rented accommodation, again a high risk demographic. Residents of Victoria Street (629), Wandsworth – Clapham Junction (628) and Hammersmith – King Street (624) are also amongst those at highest risk. Outside of London, commuter towns such as St Albans (300), Guildford (260) and Windsor (238) also have high concentrations of the most atrisk consumer types. Experian’s fraud-prevention experts believe that the high level of identity fraud within London and the surrounding towns is due to the high numbers of organised criminals operating in these areas. In addition, the increased likelihood for residents to use high class restaurants, clubs and other venues that the fraudsters are likely to target to obtain information. These areas have large proportions of high value or easy prey victims who are much more likely to rent out or live in rented property, or to share mail boxes.

The Fraud Report

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4.3.1 Risk tables

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4.3.2 Experian identity fraud risk map of UK

The Fraud Report

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www.experiangroup.com

© Experian 2009. The word “EXPERIAN” and the graphical device are trade marks of Experian and/or its associated companies and may be registered in the EU, USA and other countries. The graphical device is a registered Community design in the EU. All rights reserved.