Shifting Attacks Put Increasing ID Fraud Burden on Consumers

The credit card and financial services industries have much to cheer in the latest annual fraud report from market researcher Javelin Strategy & Research. Overall fraud dropped 15% in 2018 compared with the previous year, affecting 2 million fewer people, much of which was due to the rollout of the Europay, Mastercard, and Visa (EMV) chip-card standard. 

"Card fraud at the point of sale went through the floor, and that is great, because that has been so much of the fraud for so many years," says Al Pascual, senior vice president of research and head of fraud and security for Javelin. "That is great for issuers and financial institutions and others who have been trying to manage this risk forever, but it is not as great for the consumer, because the consumer was not paying out of pocket in the first place."

Yet online thieves continue to find ways to fraudulently monetize identity information, such as stealing from non-card accounts, taking over accounts, and creating new accounts in the victim's name. And when the fraudsters get the cards using these methods, they are typically issued an EMV card.

"It almost makes it worse, because you trust those cards now," Pascual says.

The report, based on a survey of 5,000 US adults, highlights that digital crime does not go away in reaction to changes in defense, but moves to new avenues attempting to get around. Fraudulent loan applications more than doubled for car loans, mortgages, student loans, and home equity lines of credit.

For consumers, the downside is that they are not protected against damages incurred in these new schemes. New account fraud often requires a consumer to spend a great deal of time contacting the issuer, filing a police report, and attempting to prove that he or she was not the person who asked for a new account. In 2018, nearly a quarter of fraud victims — an estimated 3.3 million people — had to pay out-of-pocket costs to deal with fraud, according to the Javelin report.

"The industry had a multibillion-dollar problem that they solved, and it just happened that what was left over increased the cost to the consumers," Pascual said.

Another setback for consumers is that criminals were able to misuse fraudulently obtained accounts for much longer, for almost every type of fraud. A new fraudulent account, for example, was used for 54 days by criminals before being detected, according to Javelin. While financial institutions have historically been the first to detect and notify consumers, because the types of accounts targeted by criminals have changed — with mortgages and student loans being common — the accounts are not caught in the same ways.

Credit-monitoring services became the most common way to detect fraud, accounting for 17% of all detection. Notification by financial institutions fell to 15%, down from 33% in 2017.

"This speaks to the prevalence of identity protection services after years of free protection following a data breach and also to the complexity of detecting fraudulent loan accounts," according to the report.

While credit freezes have become a best practice following massive breaches at Equifax and other data services, credit freezes are a hurdle for criminals, but not an absolute road block, Pascual says. Criminals will likely become more focused on the big scores, he says.

"If you have an 800 credit score and a six-figure salary, they are going to find a way to break that credit freeze on your account," he says.

A security measure that may go a way to helping further reduce fraudulent transactions is 3-D Secure 2.0. While the initial attempt at the standard failed to be adopted, the current iteration, which will be widely deployed this year, is based on cooperation between financial institutions and merchants, and relies less on consumers.

Two-factor authentication has also helped, but criminals are targeting weaker authentication methods based on the short message service. In 2018, 17% of account takeovers involved mobile devices, compared with 10% in 2017, according to Javelin.

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