Identity theft targeting family members is soaring, as is what I’ll call “desperation fraud” — opening credit accounts with no intention of paying, and little effort to disguise the fraud. These are two very bad signs for the economy, according to a firm that studies ID theft on a wide scale.
ID Analytics, which for years has provided the de facto annual report of identity theft data, is out early with some disturbing data. The firm sent it to me Tuesday afternoon.
Desperation fraud — ID Analytics considers it identity theft and calls it first-party fraud — was up 14 percent in the first quarter of 2019 compared to the year earlier, the firm says. The majority of the increase came in the wireless and online lending industries.
“First-party fraudsters knowingly apply for these forms of credit and services with an understanding that their long-term creditworthiness may decline precipitously when they default, but they want the money now and do not worry about the long-term consequences,” the firm said.
We already knew that friendly fraud — using intimate knowledge of family members’ of friends’ personal information to commit fraud — had skyrocketed recently. In Javelin’s end-of-year report last year, the overall rate of friendly fraud doubling from 7% of fraud victims in 2017 to 15% in 2018.
“The 14 percent year-over-year rise we have seen in first-party fraud is very concerning. This is the type of fraud (that increases) when people are in dire financial straits, such as in a recession or when there is significant unemployment. People are sacrificing long-term financial stability for short term funds,” said Kevin King, Vice President of Marketing for ID Analytics.
There are plenty of potential explanations for a rise in desperation fraud. One that strikes me immediately — perhaps word is out that consequences are unlikely. Or screening standards have been loosened as companies try to avoid false positives and gain market share.
But ID Analytics’ proposed explanation — that this is a canary in a coal mine for the economy — is as reasonable as any.
“We aren’t economists and don’t have models to show definitively that fraud types predict a recession. But we can say that if we are seeing such a marked increase in first-party fraud before the economy enters a downturn, financial institutions and retailers should be prepared for a tidal wave increase in this type of fraud when it does in the future,” King told me. “This is particularly troubling for the knowledge of how to commit and monetize these crimes has become increasingly common over the past few years.”