Preventing SMB Lending Fraud Through ID Verification
Small Business and Mid-size Business (SMB) lending fraud is on the rise. Respondents of a LexisNexis survey in 2023 disclosed fraud had increased an average of 14.5% year-over-year, a significant increase from the year prior (6.9%). Bogus business credentials and fake consumer/owner identities remain the most common type of SMB fraud. The most successful defense that underwriters have against identity fraud is proper identity verification procedures at the start of a background check.
Identification in background checks refers to the process of verifying the identity of an individual or business entity. This identification involves validating the name, address, date of birth, SSN, and other relevant details. The verification process ensures the data collected belongs to the relevant individual or business entity. This verification is a crucial step as it prevents an individual from stealing someone’s credit score, history, or exploiting the identities of deceased individuals, as well as exposing underwriters to reputational and legal liability. Accurate identification is the foundation of effective due diligence.
Types of Identity Fraud
Relative/Family Fraud
An unfortunate but common occurrence of identity fraud takes place within families, often with Jr. and Sr. names. Often, a father attempts to take the identity of the child, a junior, so that he can obtain a loan with the junior’s credit score. This is one of the harder pieces to identify for internal underwriters as the SSN matches the name and they also commonly have overlapping addresses.
Solution: Verifying the name, SSN, AND date of birth. If underwriters do not verify that the name, SSN, and date of birth all match each other, they could easily lend to someone with a track record of soiled credit scores and debt.
Aliases & Name Changes
Many fraudsters change their names to hide previous crimes. If all aliases are not in database searches or public record research, criminal charges, convictions, and jail time could go undiscovered.
Solution:
1. Subscribe to best-in-class data aggregators of aliases and never reply upon one source.
2. Search Biographical information & Legal Documents
- Connecting the subject to property ownership, education history, employment affiliations, legal proceeding records, debts, judgments, liens, affiliated companies, and alias names.
3. Uncover Social Media Presence
- It is very common that people use their middle name in place of their first name. Someone who legally is named Robert Michael Smith may have a digital presence as Robert Smith, Michael Smith, or Bob Smith.
- Identifying subjects through social media provides an insight into potential residency not claimed on their documentation that is tied to their social security number.
International Translations
Identity when conducting research abroad or on international subjects in the US adds additional layers of difficulty as many do not have an SSN. One crucial piece of international identity verification is understanding naming conventions in different countries to obtain the correct documents. Without searching for all potential variations, it is easy to miss or improperly identify a subject.
For Example:
- In many Asian countries, it is common for naming conventions to provide the surname first followed by the given name. Someone who goes by Amamiya Jin in this format may also go by Jin Amamiya when in America.
- In China, it is common for names to be written with traditional Chinese characters as opposed to Romanized letters. This can present a unique difficulty in obtaining records which do not utilize Romanized letters.
- Additionally, many Chinese citizens which immigrate to the United States adopt a Western name.
Solution: Utilize a team of regional experts that are native speakers of the local language to ensure searches are comprehensive and correct.
Summary
68% of fraud is caught after the point of account creation. The most successful defense against fake identities is proper identification at the start of underwriting or an investigation. If you are looking to tighten up your identity verification processes, reach out to Vcheck to discuss how we can enhance your identity process.
Vcheck identifies over 18,000 identities per year for lending and pre-investment use cases. This is completed through strong IDing protocols designed to expose a subject’s true and accurate history.
Vcheck is a human-led, technology-enabled due diligence background check firm, annually conducting over 18,000 investigations. We specialize in risk-based assessments for lending, investments, KYC, vendor onboarding, M&A, IPOs, executive placements, and overall third-party portfolio risk. Our hybrid approach delivers the financial and reputational intelligence needed for confident decision-making.
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