Different types of financial fraud explained

There are many different ways fraudsters can use financial data and stolen property to commit financial fraud. Various online methods such as phishing and malware can give them access to passwords and account numbers, and more traditional techniques such as pickpocketing or stealing discarded documents can lead to card or account fraud.

Here, we look at some of the most common types of fraud, explaining what they mean and how you can avoid becoming a victim.

Identity theft and fraud

Many of the frauds below come about because of identity theft, this is quite simply when someone steals personal details about someone living or dead, such as their bank account number, email account password or copies of their utility bills. This information can then be used to commit identity fraud, where criminals impersonate someone using the stolen information to obtain financial services or access existing accounts.

Identity theft does not necessarily have to be sophisticated to be effective, it can involve guessing a password, stealing old papers from a recycling bin or searching for personal information on social media networks. Although there are more complex techniques like using malware or false ATMs, this does mean that individuals can take very simple steps to reduce their chances of becoming a victim. You can read more about those steps in this article on avoiding scams.

Facility takeover

Facility takeover is when an existing financial service, such as a bank account or credit card, is taken over by a fraudster using stolen information to pose as the account holder. This could be achieved in a variety of ways such as intercepting a PIN code, resetting a password using security questions or by stealing a credit or debit card.

Facility takeover can often be detected by keeping a close eye on your account activity and investigating any unusual purchases with your bank or card issuer. Your bank’s dedicated fraud team should also be looking for any signs of unusual activity and may even suspend your account if they suspect fraud is taking place.

Application fraud and misuse of facility

Application fraud is usually defined as when an individual uses their own name to apply for a financial product, but uses false information or counterfeit documents in the application. For example, someone might supply fake payslips in their mortgage application to indicate that they earn more than they actually do. Similarly, misuse of facility is when someone opens an account with the intention of using it for fraudulent purposes, e.g. someone who takes out a credit card and does not plan to make repayments.

These two types of fraud can be carried out by individuals under their own name, or by someone who has stolen their identity. This type of activity can be harder to spot, as the victim may have no idea a new account has been opened. It may often come to light when they try to apply for credit and are rejected because of the fraudulent activity now associated with them.

Mandate fraud

If you use direct debits or standing orders, fraudsters might try to pose as the organisation you are making payments to, in order to redirect the money to their own accounts. This could be done through post by sending a fake letter to an individual, informing them that the direct debit payment details need to be updated. In this case, the new bank details would belong to the criminals, rather than the genuine organisation.

The same scam could be carried out by email and text message, and could even involve fraudsters hacking into a bank account to change direct debit details. It could potentially be harder to spot as the payments would not be unusual at first glance, and it may be a few weeks or months before the organisation who should be receiving the money get in touch.

If you do get a request to change direct debit details, you should get in touch with the provider of the service to check that it is a genuine request.

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