Quick Cash, Secret Shoppers and iSchemes: Inside the World of Credit Muling

April 27, 2015
By Dr. Stephen Coggeshall

Credit Muling Scams Target Wireless Carriers

Americans sign up for thousands of new cell phones every day, and most are honest people who intend to honor their contracts. A very small number are the bad apples in the bunch, criminals using stolen identities to steal valuable devices.

In our previous post we discussed the use of synthetic identities by fraud rings to defraud wireless carries of handsets, but a newer kind of customer may be committing a crime that’s much harder to detect: stealing the device without using a fake identity.

These people sign up for wireless phone service, and obtain a new device, using their real names, Social Security numbers and personal information. They don’t intend to honor the contract, but they’re not falsifying their identities.

Sacrificing Their Own Credit

ID Analytics researchers, studying data from two billion customer transactions reported by companies in the ID Analytics network, identified this behavior among a group of people who are known as “mules” – the same label used by smugglers for people hired to carry (or tricked into carrying) illegal drugs across a border.

In these “muling” cases, groups of fraudsters recruit, or dupe, other people into acquiring phones for them. In some cases, the mules are tricked into becoming part of the scam.

In other situations, people willingly sacrifice their future financial health. For some, having short-term cash flow is more important than potential long-term damage to their credit record, so they are knowing participants in the scam.

The Gullible Participant

Another type of mule is the unsuspecting consumer who’s tricked into helping a fraudster. Imagine a well-dressed person with a clipboard and a stack of forms approaches you at a mall. They identify themselves as a representative of a secret-shopping service who’s been hired to measure the quality of customer service at the mall’s wireless store.  They explain that if you are willing to be a secret shopper you’ll make $50 in 15 minutes.

You agree to participate, and you’re given the following instructions: Go into the store, sign up for phone service, get the phone, and bring us your receipt. We’ll ask you a series of questions about the quality of the service, we’ll reverse the transaction to cancel the account, and we’ll pay you $50 for your time. Just leave the phone with us.

The consumer who falls for that scam earns $50, only to find out weeks or months later about an overdue bill for that new account and phone. The scammer spent $50 for a phone that can be resold for hundreds of dollars.

Easy Money for Those in Need

In another twist on muling, the buyer of the phone is a willing participant in the scheme. Fraudsters prey on those with lower incomes, offering a chance to make some quick money. In one case documented by a television reporter in Colorado1, referred to as an ‘iScheme’, homeless and low-income people were sent into stores to sign contracts for phones in their own names, and then given cash in exchange for the phones by a man whose business sold the phones overseas.

Some low-income people have clean credit records because they’ve never applied for a credit card or loan from a traditional financial company. Combine that with wireless companies that are anxious to sign up new customers, and it becomes relatively easy for many people to qualify for a phone contract.

In Colorado, the scammer approached people who need money – in one case, he was recruiting outside a clinic where people could sell blood plasma to raise cash – and offered them $200 to go into a store, sign up for contracts for several phones, and then give him the phones. He told those people they could cancel the contracts afterward, which was not true. That leaves the scammer with hundreds of dollars in profit per phone, and the ”mule” with unpaid debt that will make it harder to get credit, or an apartment, in the future.

While the victim of the “secret shopper” scam might be innocent, or choosing to ignore the “too good to be true” aspect of the deal, the homeless or low-income person who participates in exchange for quick cash likely knows there’s something shady about the transaction. But when some quick cash means a hot meal or a roof over your head, it’s harder to contemplate the long-term effect of an overdue debt and a damaged credit rating.

Tracking Down a Muling Scheme

To identify this type of behavior, ID Analytics’ researchers look for patterns in what they call “first-party fraud.” When we examined cases flagged as possible first-party fraud, two things stood out:

  • Among transactions identified as the riskiest, a large number took place in two adjacent New York City neighborhoods, both in the Bronx.
  • The transactions occurred in the fall of 2013, just as Apple was launching its newest iPhone. The phones often command the highest prices overseas when the model has just come out.

With such a strong concentration of potentially fraudulent transactions in one neighborhood, the ID Analytics data suggests an organized ring that recruited mules and resold phones in large numbers during the iPhone. Plotting addresses from the wireless-service applications showed clear geographic patterns.

Geographic pattern mapping doesn’t always identify the perpetrators, but having that kind of data available in real time can help merchants decide which transactions carry the highest risk. That means most transactions can be cleared quickly, with minimal friction, while only the ones with true risk are delayed for additional review and further verification.

 

Dr. Stephen Coggeshall is Chief Analytics and Science Officer at ID Analytics.

 

1. Jojola, Jeremy. KUSA. (24 April 2014) Caught on camera: 9Wants to Know exposes ‘iScheme’ retrieved April 14, 2015 from: http://www.9news.com/news/investigations/caught-on-camera-9wants-to-know-exposes-ischeme/249748824