The rate at which consumers fell significantly behind on their credit card bills has fallen continually due to improving credit conditions, but new data suggests part of the remaining late accounts is made up of first-party credit card fraud.
This type of crime occurs when a consumer takes out a credit card as normal but does so having no intention of actually paying back the balance they accrue, and the problem is more common than many might think, according to research from the Mercator Advisory Group. This type of fraud, unlike others, is difficult for lenders to spot because it is less apparent when the account is first taken out.
However, many are now stepping up efforts to put better safeguards in place so that first-party fraud is less common, the report said. The hope is that lenders will be able to increasingly combat these bogus accounts in much the same way they did for identity theft rings and other such instances of fraudulent card use. Having the ability to identify bad accounts and respond to the problems they pose should be a foremost concern for lenders.
"Part of building a strong case that demonstrates a first-party fraudster's intent is establishing a pattern of behavior that reveals it, but the best risk management policy is to cut off a fraudster's opportunity to steal in the first place," said David Fish, senior analyst in Mercator's Fraud, Risk, and Analytics Advisory Service. "As fraud schemes increase in sophistication, it is all the more imperative for risk managers to harness the power inherent in broader data sets by applying analytic strategies that can detect correlations between seemingly unrelated incidents and identify behavior that may be predictive of fraudulent activity."
Of course, charge off rates in general have been declining significantly, and this is likely tied to growth in the job market seen over the last few years, the report said. When unemployment was sky-high during the recent recession, instances of both charge offs and early-term delinquency increased as well, but now that jobs are steadily improving, and have been for some time, lenders have enjoyed all-time record lows in both late payment categories, both emboldening the institutions to broaden credit standards and turn their attentions to concerns that have existed for some time.
In general, experts note that changes in the nationwide delinquency rate are reflected by similar fluctuations in charge offs several months down the line. But these days, more consumers are trying to stay current on their various bills due to the credit problems they may have run into in the past, leading to more on-time payments. This change has come even as card use continues to expand due to consumers generally feeling better about their finances and begin borrowing again. Some analysts believe instances of delinquency and default could start growing again in the near future.
