Understanding Different Types of Fraud & How to Avoid Them

Monday, November 22, 2021 3:50 pm, Posted by Absolute Destruction

The terms identity fraud and identity theft are often used interchangeably to refer to the illegal act of using a different person's information to gain economic gain. Considering that the definition of identity fraud is considerably broad, there are further classifications of identity fraud depending on its nature and the degree of its criminality.

These days, the popularity of online banking and the convenience of online transactions led to increased identity theft and fraud cases. To keep yourself protected from theft attacks and unknowingly committing fraud, here is a simple guide on the different types of fraud and how to avoid them.

First Party Fraud

First-party fraud occurs when an individual tries to commit fraud by misrepresenting themselves with the intent to deceit. This type of fraud involves providing false information to execute their ill intentions.

An example of first-party fraud is when a fraudster lies about their financial situation in order to apply and qualify for a loan or credit card. Bust-Out-Fraud is a common type of first-party fraud where the individual lies to get a loan or credit for the sole purpose of maxing it out and never paying it off.

However, first-party fraud doesn't always have to be as extreme as a Bust-Out scheme. Changing up a couple of details to make your financial situation look good to receive credit or a loan is also a form of first-party fraud.

Second Party Fraud

Second-party fraud is committed when an individual knowingly gives out their personal information or credentials to another person for them to commit fraud. This activity is known as "friendly fraud" and is done by using an unassociated device with the legitimate account holder. By doing so, the transaction appears to be fraudulent, coming from the owner's point of view.

The nature of second-party fraud often makes it difficult for banks to prove that the account holder was, in fact, part of the crime as they could easily deny these allegations.

Third Party Fraud

Third-party fraud is the type of fraud that does not involve the account owner but is committed by someone who stole their details and personal information. The legitimate account owner would be the victim and wouldn't have knowledge of the fraudulent activity. Generally, the fraudster would either use the account owner's identity and access their personal information.

There are several types of third-party fraud common nowadays. They include the following:

Account Takeover (ATO)

This is where the fraudster phishes or hacks the victim's account and gains control. Often, the fraudsters disguise themselves as a trusted or reliable entity to trick the victim into giving out their account details and other sensitive information. Once they gain access, the fraudster can easily commit fraudulent activities using the victim's account and credentials.

Loan Stacking

This fraudulent activity uses the victim's personal information and credentials to apply for several small loans from different banks and lenders. This provides them with massive financial gains while severely damaging the victim's reputation and credit score.

To keep any of these from happening to you, make sure to keep your credit and banking information private. Avoid sharing personal information with strangers and online. Also, be wary of suspicious emails and calls that may be disguised to fish or hack your account.

Challenges in Detecting Fraud

Difficult to interrogate customers

When it comes to first-party fraud, it is considerably hard to establish whether or not the account owner is truthful. Even if banks notice suspicious activity from an account, some customers may find it offensive to interrogate their spending practices.

Easy to deny involvement

An account owner's involvement in second-party fraud is also challenging to prove because the owner will never confess or simply deny participation in the act.

Complex fraud tactics

An account owner's involvement in second-party fraud is also challenging to prove because the owner will never confess or simply deny participation in the act.

Avoid possible fraudulent activities by shredding your sensitive documents. Contact Absolute Destruction and Recycling Corp. for your shredding needs.

“Be careful about how you handle sensitive documents. Ensure that security protocols are in place to prevent possible fraud.” - Absolute Destruction

Avoiding Fraud in Canada

Your personal and banking information should always be protected and private to avoid identity theft and fraud. Given the advancements in technology today, sharing sensitive information online can be used by fraudsters against you.

Securing your information and getting rid of any possible info leaks can keep your identity and your details safe from different types of fraud. Absolute Destruction is an expert in keeping and maintaining data security and privacy through document protection, paper shredding, and data destruction.

Contact us for document destruction and shredding services in Southern Ontario to take your security to the next level.

FAQs on the Different Types of Fraud & How to Avoid Them

How can I protect myself from credit card fraud?

It is our responsibility to safeguard personal information and other sensitive details at all times. Avoid saving your credit information online and sharing personal information on social media to protect yourself from credit card fraud. It would be best to be wary of unsecured websites, phishing scams, and suspicious emails that can be used to hack your account.

How common is fraud in Canada?

In 2020, there were nearly 72,000 reports about fraud or fraudulent activity in the country. Over 42,000 Canadians fell victim to fraud and lost a total of 106.6 million dollars because of these scams.

Where should I go if I experience fraud?

Victims of fraud can file a report to the Canadian Anti-Fraud Centre. Fraudulent or suspicious activities can be reported through the same agency, and it is best to keep evidence regarding the complaint.  

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