Credit Muling Drives First-Party Fraud

John Smith opens a new credit card account, immediately maxes out his credit line, defaults and disappears without a trace. Despite repeated attempts, the issuer is unable to locate him. His account is eventually written off as a loss. In this scenario, Mr. Smith used his own credentials, with minor variations in his contact data, to deliberately defraud the credit card company.

Mary Jones is an unsuspecting consumer, a single mom struggling to make ends meet. She is approached by a representative of a “secret shopping” service. She’s offered an opportunity to make quick cash by signing up for multiple contracts for iPhones. She’s told she’ll be compensated for the phones she obtains, and the service contracts will be cancelled. She’s assured the transactions are legal. Months later Ms. Jones is facing mounting overdue bills for the new accounts and phones while the fraudster has already resold the phones for hundreds of dollars.¹

These are examples of first-party fraud. They’re easily missed by the traditional fraud detection methods used at many businesses and financial institutions. How did Mr. Smith and Ms. Jones manage to fly beneath the radar? The answer is surprisingly simple: When they apply for credit, purchase a product, or sign a contract, they use their real identities.

Often referred to as “credit muling” or “equipment gaming,” first-party fraud occurs when real consumers use their real identities and personal information with minor variations to apply for multiple, high-value products with no intention of honoring their contractual agreements.²

In these muling cases, fraudsters recruit people—often underserved and at risk—into acquiring products for them. In some cases, the people are tricked into participating in the scam. In other situations, they are willing participants more interested in receiving instant reward than in the risk that comes with committing an illegal act or the potential for long-term damage to their credit record.

When consumers set out to steal from a business using some or all of their real identity data, running a standard credit check—or even a third-party fraud screen—won’t protect the credit issuer. The mule’s identity profile isn’t synthetic, so it easily evades detection. 

Credit muling scams have become big business. In fact, some are run by large, organized crime groups. If companies hope to combat this fraud, they’ll have to adopt stronger ID verification systems. What’s needed is a specialized approach, one that uses multiple fraud assessment tools and predictive solutions. 

LexisNexis® Risk Solutions helps to expose first-party fraud through our expansive, proprietary shared intelligence networks that collect consumer behavioral data to form a historical picture of how a consumer typically behaves. The data comes from a variety of sources including:

Using LexisNexis Risk Solutions to leverage that multi-sourced data, we can help expose individuals who seek credit and services in an unusual and high-risk fashion.

By rank-ordering the risk associated with consumer identity elements being asserted on an application, LexisNexis Risk Solutions provides a first-party fraud risk assessment across all channels.

Higher risk applications are flagged for remediation while lower-scoring applications may move on to the next step of the purchase process. Organizations choose the score threshold that best balances fraud prevention with fast, convenient adjudication processes for their customers.

With the right first-party fraud solutions, financial institutions can:

• Identify and analyze the special attributes of “mules” across industries
• Minimize the manual review of legitimate, legitimate customers
• Help reduce first-party fraud losses with a near real-time fraud assessment purpose-built for this unique challenge

Contact a Sales Representative to learn more about our solutions for first-party fraud.

1. Jojola, Jeremy. KUSA. (24 April 2014) Caught on camera: 9Wants to Know exposes ‘iScheme’ retrieved April 14, 2015 
2. Tressler, Colleen. Whoa there! Watch out for cell phone ‘credit muling’. FTC Consumer Information. (11 June 2014)