The Warning Signs and Growing Threat of New Account Fraud

In the world of deposit fraud, new account fraud is a frequent flyer because without an established history it can be easier for new account holders to sneak through. Teaching your staff how to spot potentially fraudulent new accounts is a great way to get ahead of this popular scam. According to the 2015 Data Breach Fraud Impact Report published by industry analyst Javelin Strategy and Research, new account fraud was projected to increase from $5B in 2014 to $8B in 2018. Here are some tips to help your bank or credit union get out in front of this growing trend.

Teaching your staff how to spot potentially fraudulent new accounts is a great way to get ahead of this popular scam.

First, new account fraud typically occurs on an account within the first 90-days it is open, so this is the window to watch new accounts more closely for suspicious activity. Also, most fraudsters will wait for more than 30-days to make the first deposit or they will start with small deposits and withdrawals in the first month to make the account appear normal.

Patterns of New Account Fraud to Watch For

  1. Many new account fraud perpetrators will make deposits on a Friday or Saturday before a banking holiday to give them a more extended period to withdraw the funds before any deposited items are returned. However, having TrueChecks® in place can help by spotting potentially fraudulent items at the point of presentment and placing it on an extended hold to avoid fraudsters from taking withdrawals from the money before it is fully approved.

  2. Stolen, forged, and counterfeit checks drawn on new accounts are one of the most common types of new account fraud. As soon as funds are available, the deposited items are withdrawn, and the fraud is not known until the deposited items are returned unpaid to the bank or credit union several days later. This can also be avoided by using the combination of TrueChecks® and updated check cashing procedures, to match the actual period it takes for a check to be returned. By eliminating that period where checks balances are made available before they are fully vetted, the FI can get ahead of this common fraud practice.

  3. Watch out for new accounts opened with the name, social security numbers, and/or date of birth of an identity theft victim. There are multiple ways to verify a customer’s identity and check if there are any identity theft reports, but typically using one of the three major credit bureaus is the most common practice.

  4. Look for unestablished businesses with limited supporting documentation. Making up a fake business is an easy way for fraudsters to open new accounts. Moreover, often, business accounts are given greater privileges, and larger daily maximum withdrawal limits so be careful of these ‘fake’ business accounts.

  5. Deploy extra caution with allowing accounts to be opened not in person. With the anonymity of the internet, many fraudulent new accounts are opened through online banking, telephone, or email.

Here are some important red flags for new account fraud, as compiled by the Association of Certified Fraud Examiners (ACFE).

  • Check that the name provided by the applicant matches the return by the credit bureau search of their SSN. A mismatch almost always indicates fraud!

  • Check if two different names, with different addresses, appear under the same SSN. Normally the established one will have a longer history than the other. This would indicate someone merely using the established SSN of another person.

  • If the applicant is 25-years or older and has a newly issued SSN- red flag!

    • If the applicant is older than 25, has an established SSN, but the name and address information was only established within the previous six months.

    • Alternatively, if the primary ID was issued within the last 60 days, this could be someone assuming the identity of a real citizen and having to obtain legitimate identification within their state of residence. Unless the applicant has recently moved to the area from another state, his/her ID should be older than 60 days.

    • If the applicant is older than 25 and doesn’t have any previous financial institution history. Most adults have some checking or savings account history of financial institutions starting in high school or college. It is highly unusual to make it to 25-years-old without any such history. People who open new accounts are often in the process of moving and using checks from their old accounts as initial deposits. Most individuals will have a history at a financial institution because most working individuals use electronic banking, ATMs, direct deposit, and similar services.

  • If the opening deposit is a small cash deposit under $500, this can indicate fraud. The purpose of using cash is that it's untraceable. Some criminals will not risk using counterfeit or forged items to open a new account. Banks usually place holds on new accounts to provide ample time for the check to clear before the new customer is allowed to draw funds against the deposits. No holds are placed on cash, and fewer questions are asked of customers presenting small cash deposits.

  • Using a mail drop instead of a real street address is a red flag. This is another way an individual can hide their true identity and avoid capture when their fraudulent activities become known. Typically, private companies will rent mail drops and can refuse to provide the name of the individual who paid for the box. Almost any individual can rent a drop box without undergoing background verification. These establishments provide their customers with a valid street and city address and a box number at which to receive mail.

  • For business accounts, if the applicant’s home or business address is not in the same geographical region as the financial institution, this could indicate fraud. This is done, so the individuals who open fraudulent accounts are unknown to the local branch offices.

  • Look for a match on the address on the presented identification and the home address provided. If they do not match, it could indicate fraud because many financial criminals will obtain identification in the true identity of an unsuspecting individual. The victim’s and the fraudster’s information will be the same on formal documents; the only difference will be the photograph. To avoid documentation being forwarded to the victim’s residence, the fraudster will provide a different address for the mail for the new account.

  • Be wary of non-driver ID cards. Identification cards for non-drivers can be easier to fake than state motor vehicle issued cards. Financial criminals are attracted to non-driver ID cards because they are easy to obtain and hard to trace.

  • Behavioral cues to train your staff to look for include an applicant being overly friendly and trying to establish a quick rapport with a banker. They may also dress or act inconsistently for the customer’s stated age, occupation, or income level.

  • Lastly, one of the most significant red flags is if a new account applicant asks for an immediate cash withdrawal upon deposit or requests a large quantity of temporary checks. If they don’t have an established/verifiable reason, this is a red flag for fraud.

We hope these tips will help your FI stop more deposit fraud, and train-up staff on items to watch for as new account fraud continues to be problematic. Stay tuned to the Fraud Fighters blog next week for tips for spotting mobile deposit fraud. 

— written by Advanced Fraud Solutions