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Organized Crime – Exploiting the Gaps in the Credit Process

Organized crime rings are heeding to the shift, looking for ways to maximize their overall operations without being prosecuted for their illegal activities. Long gone are the days of breaking into vehicles using the conventional ‘jimmy’ instrument to access the vehicle. Nowadays, the RISKS are too high to be caught driving around in a stolen vehicle.

Fraudsters are looking for low risk/high reward methods of exploitation for easy money!
To mitigate their overall risk, the most sophisticated ‘fraud rings’ are exploiting the process and legal loopholes to commit their crimes. After all, according to Armando Aguilar, criminal investigations chief at the Miami Police Department, “Fraud is the new dope.”

In a recent case study conducted by a large auto lender which I’m keeping anonymous, their analysis revealed a trend in fraudulent retail installment sales contracts (RISC) with fraudulent tradelines. This is also referred to as Ghost and Phantom Trades in the industry.
So, what are ‘Ghost/Phantom Trades’?

Ghost/Phantom Trades are when either a legitimate or falsely created entity reports non-existing installment / revolving credit to the Credit Reporting Agency (CRA) for the sole purpose of ‘boosting’ credit. Additionally, these entities will report good payment behavior on accounts where credit was never issued.

Example of a Ghost/Phantom Trade Created:
• Set up or take over a corporation who extends consumer credit (auto/ personal finance company)
• Contacts credit reporting agency to be an authorized reporting entity.
• Markets online/social media ‘how they can help’ consumers boost credit. Consumers pays a fee for service. Consumer gets no loans from the entity, however a tradeline is created.
• An illegitimate organization reporting positive payment activity.
• Consumer’s credit score improves significantly, depending on the number of tradelines reported.
• Consumer then seeks credit from a lending organization (auto, mortgage, personal finance, BNPL, etc.) with a clean credit report falsely depicting the consumers ability to pay. In many cases, this extension of credit results in higher delinquencies/charge offs.

The identities used can be true name or synthetic Identities; however, data shows true consumers increasingly using services to add, delete or amend tradelines for the sole purpose of accessing credit. The manifestation of Credit Washing and Ghost/Phantom tradelines is driving higher credit losses, which causes many lenders to increase rates (better known as risk-based pricing) for good consumers.

Preventing this behavior requires a collaborative effort across multiple parties including credit reporting agencies, lenders, and consumers to detect and prevent Ghost/Phantom Trades.

The world of ‘Organized Fraudsters’ has changed and continues to morph into the digital space, focused on ease of access, lower risk of prosecution, and maximizing the amount they can siphon across a single/multiple entities.

Zahid Kassem
Zahid Kassem
Zahid Kassem, is currently the chief product/technology officer for TurboPass Corp, a leading verification services provider for the automotive dealers and lenders. He has spent the last 27 years, in various senior/executive management roles at financial institutions, including auto lenders such as Ally and Santander Consumer, focused on preventing and detecting 1st/3rd party fraud. Most recently, Kassem served as vice president of Equifax’s Digital Services Product organization, developing solutions to mitigate identity and fraud across financial institutions, equipment finance, telcos, and tenant/propertymanagement organizations. Kassem has a deep knowledge of fraud typologies across the consumer/commercial lines of business and how technology can bridge the ‘art & science’ of identifying fraud.
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