The Growing Trend of Loan Stacking (and How to Fight Back)

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[Editor’s note: This is a blog post from Emailage. Emailage is a gold sponsor at LendIt Fintech USA 2019, which will take place on April 8-9 in San Francisco.]

Online lending’s speed advantage has led to a growing problem: a type of fraud called loan stacking.

Back in the day, to get a loan you’d have to visit a bank branch. You’d have to sit before a loan officer, in anxious anticipation of whether you’d make the grade.

Those days are long gone.

Now, the rise of online lending has lead to near-instant approval of loans. Applicants can apply (and be approved for) for multiple loans in a matter of days. Or even hours. Technology allows for partially automated underwriting. Depositing often occurs within hours of approval.

This is great news for consumers. It’s even better news for fraudsters.

Loan stacking, defined

You see, online lending’s convenience is a double-edged sword.

To “stack” loans, fraudsters only need stolen personal data. Which, unfortunately, is all-too-easy to acquire on the dark web.

Using this stolen information, fraudsters apply for multiple loans in a short timeframe. The key is to move quickly, hitting several loan companies at once.

Loan stacking isn’t just the realm of hardened criminals, either.

Others use their actual identity, taking out many loans with no intention of repayment.

Both groups take advantage of quick approvals, before credit files update to reflect increased debt load.

How is this possible? It’s a question of time. The timeframe between approval and delivery of funds is less than the timeframe to report the loan to credit reporting agencies. Plus, most online lenders only pull so-called soft credit reports.

These reports generally consist of a score. What’s not examined is the number of applications or inquiries outstanding.

Velocity

The one signal that strongly indicates fraudulent intent in loan stacking is velocity.

In our world, velocity is all about how fast a single email is being used in multiple transactions. In this case, it’s loan applications.

With velocity tracking, you can identify risky queries in real time and stop anyone attempting to apply for a large amount of transactions.

Say someone is using the same email address to mass apply for loans. Each query of that email address is recorded. An email address queried frequently over a short timeframe will trigger velocity alerts, which warn customers about fraud patterns as they develop.

This process doesn’t only apply to applications at your company. It encompasses all transactions that are happening across our entire network, which links lenders into a global shared fraud database. This allows enhanced early fraud detection and prevention.

Plus, the vast majority of online lenders are Emailage customers. While they may be technically your competitors, you share a common enemy: online fraud. To match the increasing sophistication of fraudsters, you have to fight network-to-network.

The same technology that has opened lending access to consumers also makes it possible to be approved and draw down funds on many loans in quick succession. We all know how quick fraudsters are to adapt and exploit.

By taking a deep look behind the email address, that applicant isn’t going to look as “new” as before.

Click here to discover how to get secure, intelligent risk assessment using just an email address.

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