High interest rates and inflation continue to take a toll on Canadian consumers. As the demand for credit grows, businesses and individuals alike must remain vigilant to the changing face of fraud — especially as identity fraud grows in a variety of key sectors.

According to Equifax Canada’s H1 2023 Market Pulse Fraud Trends report, overall fraud rates are higher than Q2 2022 by 26.8 per cent, but down slightly from Q1 2023. In breaking down the patterns of various types of fraud, consumers can better protect themselves from fraud in the auto, mortgage, and credit industries.

 

Auto loans show an increase in identity theft

The automotive sector continues to rebound from the lows caused by past supply chain challenges. Pent-up demand for vehicles is high and auto loan applications have risen significantly, up 27.3 per cent quarter-over-quarter and 26.5 per cent year-over-year from Q2 2023.

Along with the growth in applications, the auto industry is experiencing an increase in fraudulent loan applications. First-party fraud is the most prominent type seen in this sector, with false employment and income claims being the biggest threat to auto loan applications. First-party fraud occurs when an individual intentionally misrepresents their identity and/or gives false information for financial or material gain. In addition, a rising tide of identity fraud is cause for concern, especially since it has historically been less frequently seen in this type of secured lending. As a lender, mitigating risk in real-time can help reduce potential fraud losses. Protecting yourself against first-party fraud can also enhance your client journey and strengthen your customer strategy.

 

Higher cost of lending is driving up the fraud rate

If interest rates continue to climb, fraud rates on mortgage applications could increase as consumers are pushed out of the pricey mortgage market, according to Equifax Canada. As of Q2 2023, the mortgage fraud rate increased by 18.8 percent year-over-year. 

Consumers in financial distress can potentially be incentivized to commit first-party fraud, intentionally providing false information on their applications in order to qualify for a mortgage, especially when the economic market is competitive and volatile. Falsified financial fraud continues to be the biggest challenge with mortgage applications, accounting for 46.5 percent of fraudulent applications. As the cost of borrowing rises and fraud continues to evolve, fraud prevention platforms can help protect your business and help reduce fraud losses.

 

Fraud rates are expected to rise as consumers experience more financial stress 

Economic headwinds have a direct impact on credit application fraud. For the second quarter of the year, in line with the increasing demand for credit, there was an increase in fraudulent application volume. This trend has the potential to continue if demand for unsecured lending continues, and Canadians continue to lean on credit in a challenging economy.

The banking industry has experienced a two-fold increase in worthless deposits, a type of first-party fraud in which a deposit is made from an account where the funds are either fraudulent or non-existent. This trend aligns with the decrease in digital fraud as in-person banking resumes; the impact of this shift will be monitored to determine its influence on fraud rates.

Through understanding consumer behaviours, lenders can adopt strategies to help reduce losses related to fraud. Three ways to make faster and better decisions to help mitigate fraud losses include: 

• Operationalizing a fraud management strategy using machine learning

• Upgrading to a powerful visual reporting tool

• Leveraging known fraud information.

 

For further insight into prevalent Canadian fraud trends, watch Equifax Canada’s H1 2023 Fraud Trends Webinar. 

If you want to learn more about how we can help mitigate fraud and identify risks, please contact your Equifax Account Representative. You can also reach us directly at 1-855-233-9226 and follow us on Twitter and LinkedIn.  

 

This article is published by Equifax Canada Co.® 2023. All rights reserved. No part of this article may be reproduced, copied or transmitted in any form or by any means, or stored in a retrieval system of any nature, without the prior permission of Equifax Canada Co. This article is for informational purposes only and is not intended to be legal or business  advice. 

 

Related Products and Solutions

FraudIQ Manager | Mortgage Insights Analytical Tool | Fraud Loss Management Tools