Fraud trends appear to be returning to pre-pandemic levels, but looking at fraud activity within specific industries can provide a more holistic view. 

First-party fraud was seen mostly in secured lending while third-party fraud was more common in unsecured lending. First-party fraud describes incidents where the borrower is knowingly using their information to commit a fraudulent act. Third-party fraud indicates that someone other than the owner of those credentials is attempting to perpetrate a crime. 

Despite a return to pre-pandemic fraud levels, lenders should be wary that increasing financial pressures on Canadians could lead to a spike in all types of fraud – especially mortgage fraud and credit card fraud – in the final months of 2022. 
 

Mortgage industry fraud rates remain high despite cooling market

There appeared to be a recent slowdown as fraud rates dropped by 13.3 percent in Q2 2022 in comparison to Q2 2021, however, mortgage fraud rates remain higher than their 2019 levels. The higher baseline could be driven by early 2022 housing inventory challenges. The slowdown in mortgage buyers helped with price correction in a lot of markets. Yet despite the price correction, the cost of houses is still high, and raised interest rates could negatively impact home affordability for some consumers. This environment may influence consumers to falsify personal information in order to secure a home, which could explain the observed higher fraud rates.

First-party fraud is the most prevalent fraud type when it comes to mortgage applications. Applicants falsify their financials, income, and employment information or provide conflicting information. Equifax data suggests that 92 percent of fraudulent mortgage applications include the falsification of financial data; falsified bank statements, income and employment data, or conflicting information.

Being aware of the fraud trends within an industry can aid in preventing and detecting future fraudulent incidents. 

Auto industry fraud rates are at their lowest since 2019 

The auto fraud rate is down by 16.6 percent with a 3.9 percent decrease in applications year-over-year. Given the lower volume of vehicles, a greater drop in the volume of applications might have been expected. However, this drop was masked somewhat due to consumers shopping around to multiple lenders while trying to secure a vehicle. These insights link to the supply chain delays affecting manufacturers and in turn, inventory shortages at dealerships. 

The fraud type seen in suspicious applications is similar to the mortgage space as a result of the competitive nature of the market. The majority of fraud observed in the auto industry was first-party fraud, such as falsified employment and income records or conflicting information. While 92% of auto fraud is first-party fraud, the proportion of identity theft in auto applications is also on the rise.

Telecommunications fraud rates show a downward trend as application volume is taking longer to recover

The telecommunication industry fraud trends and patterns are returning to pre-pandemic levels seen in 2019. Telco was hit hard during the pandemic with low application volumes showing this trend. In the most recent quarters, there was a rise in the number of applications with a volume increase of 25.7 percent from Q2 2021 to Q2 2022. This increase in applications is nearing the levels that were seen in 2019. Understanding the patterns behind fraudulent activity can aid in the prevention, detection, and reduction of losses related to fraud.

Insight into future fraud trends

Fraudster behaviour is shaped by the environment and the opportunities that present themselves. In our current environment debt levels are increasing for consumers, there’s a higher cost of living, and there are early signs of financial stress. It can be expected that financial hardship will cause an increase in first-party fraud as consumers continue to rely on credit products, doing whatever they need to do to open their accounts or extend their limits. Carl Davies, Head of Fraud & Identity at Equifax Canada, suggests that “as we enter periods of economic instability, we should expect the same to happen to potential increases in first-party fraud and we need to be aware and to protect our businesses accordingly.”

For more valuable insights on the economic impact of the pandemic and global events on fraud, watch the full Q2 2022 fraud trends webinar and panel discussion. 

We want to help Canadians live their financial best. If you want to learn more about how understanding recent fraud trends can help minimize risk and reduce loss due to fraud, please contact your Equifax Account Representative. You can also reach us directly at 1-855-233-9226 and follow us on Twitter and LinkedIn.  

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