The Green Sheet Online Edition
June 23, 2008 • Issue 08:06:02
FACTA the future
According to the fraud detection and prevention experts at ID Insight Inc., identity theft occurs most often when change of address requests are granted by financial institutions (FIs). Armed with enough victim information to fool FIs into allowing counterfeit address changes, fraudsters are then able to receive credit cards, debit cards and bank checks all in the names of unsuspecting victims.
Once fraudsters set up fake identities, they go about destroying victims' credit ratings and causing major headaches for all sectors of the payments industry. To combat this fraud gateway, ID Insight has partnered with credit risk analysis firm Zoot Enterprises Inc. to offer the Safe2Change Address Differential Analysis to avert address-related fraud.
Safe2Change determines the likelihood of fraud in an address change request or address discrepancy. In both new and existing accounts, the algorithmic technology sorts out high-risk addresses from those deemed legitimate by crunching demographic data, verification data, U.S. Postal Service data, historical fraud data, criminality scores and other data elements. It's a mind numbing amount of information to analyze.
"Twenty percent of all new credit worthy applicants have address discrepancies," said Adam Elliot, President of ID Insight. "So if you're a large FI with 20 million applicants, suddenly 4 million accounts are unresolved. They can't issue those cards; they can only verify 40 percent of those applications. And the other 60 percent are going into a very timely and costly manual review process."
But Safe2Change is not just for FIs. According to a spokesperson at ID Insight, the technology is for any company that offers credit or runs credit checks on potential customers. Those businesses include property management enterprises, furniture stores, car dealerships, phone companies, pay-day lenders, and recreational vehicle and boat rental shops.
By Nov. 1, 2008, all such companies - about 2 million in the United States - have to comply with the FACTA (Fair and Accurate Credit Transaction Act) Identity Theft Red Flag and Address Change rules. These government imposed guidelines are designed to reduce fraud through risk assessments and the implementation of identity theft policies.
Elliot said The Federal Trade Commission has 44 potential red flags, but FIs and businesses need to figure out which ones apply to them, put together comprehensive plans and then implement those strategies.
Under section 114 of FACTA, card issuers are required to develop procedures and policies to assess and verify the validity of an address change followed closely by a request for an additional replacement card. Section 315 requires that creditors first form a reasonable belief of "true identity" when they observe mismatches between applications and what is on record with credit bureaus.
When the Red Flag guidelines become mandatory this November, FIs and businesses can expect the burden of "knowing the customer" to expand when all address mismatches need to be analyzed. ID Insight noted that Safe2Change works with existing infrastructure, needs no new hardware or software, saves labor costs, and increases customer retention.
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