Credit card charge offs affected by first-party fraud

Many consumers are trying to get their finances back in order by seeking credit help and by generally attempting to keep their accounts in order, but lenders are still plagued by late payments caused by a particularly problematic type of fraud.

Over the last two years or so, all of the nation's top credit card lenders have seen instances of delinquency and charge offs fall considerably thanks to consumers trying to control spending and reduce their credit card debt, but one factor that may have buoyed these rates is known as first-party credit card fraud, according to new research from the Mercator Advisory Group. Unlike traditional credit card fraud, in which a crook uses someone else's data to apply for an account and rack up charges, first-party fraud involves a person applying for a credit card as normal, but doing so with no intention whatsoever of paying back the balances they rack up.

The problem lenders face from first-party credit card fraud is that unlike the patterns often observed in other, more common versions of the crime, is that it is very difficult to detect, and therefore challenging when it comes to prevention, the report said. As such, lenders are now devoting more effort into creating technologies that can identify what could indicate this type of fraud is a possibility when an application comes in.

"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."

Charge offs and unemployment move in opposite directions
But despite the existence of this type of fraud propping up charge off rates somewhat, instances of late payments have fallen considerably since the recession, the report said. Both charge offs and delinquencies are now at or near all-time lows for all of the nation's top lenders, and data suggests this is directly related to growth in the job market. During the recession, when unemployment spiked considerably, so too did instances of late payments and defaults. But now that unemployment has been shrinking for the last two years, Americans' ability to repay their credit card balances on time has improved appreciably.

The recession led many Americans to wonder just how to fix credit that was damaged through no fault of their own, and many likely found that the best strategy was to borrow more responsibly — making payments on time and in full, and keeping balances low. Consumers with seriously delinquent credit reports may find it helpful to consult with a credit repair law firm.

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