The Latest Way Fraudsters Are Abusing Personal Information

According to a 2016 report from the security firm ThreatMetrix, identity thieves are working a new seam in the identity theft gold mine: online lending.

According to a 2016 report from the security firm ThreatMetrix, identity thieves are working a new seam in the identity theft gold mine: online lending. There is an increase in attacks against providers of alternative lending products.

The reason online lenders have attracted this unwanted attention has to do with the niche they occupy. First, they typically offer smaller loans in the $2,000 to $5,000 range. They differentiate themselves in a crowded market by providing faster turnaround than traditional lenders. It is that speed that makes it an ideal transaction type for the commission of identity theft: Thieves use fake or stolen personal information to apply for funds they can get quickly — before the lenders or potential victims know what’s happened.

I know what you’re thinking: Really? And yes, I am sorry to say it — but very much so: Really. We’re talking about THIS again, because last year fraudsters were able to scam $16 billion from consumers. This is yet another example of how identity thieves abuse people’s personally identifiable information to the detriment of both consumers and businesses. That tells me that we need to keep talking about how to stop being such an easy target.

The New Normal?

There’s a question mark up there because unfortunately curiosity and disbelief are still the most common reactions consumers have when the conversation turns to identity-related crime. Personally, I would add that it boggles the mind people still question the prevalence of the identity theft scourge.

Here’s the deal: Your chances of getting “got” have never been better, whether it’s in a simple credit card fraud scam, a mind-rackingly complex attack on every available crumb of value to be had through the exploitation of your financial reach in the world, or this latest trend where identity thieves target online lenders.

Is it really the new normal? The answer: No, it is not.

There is, in fact, nothing new about it. It’s the plain old vanilla, 100% normal now. The trend began well over a decade ago. If I were being a stickler, the heading would say, “the mind-numbingly old but still not totally understood normal” or “the how can this still be something I have to write about normal.”

When it comes to identity theft, it’s all about your personally identifiable information being in the wrong hands and not so much about what you do to protect yourself. But before you throw your hands in the air and start singing like Madam Butterfly, keep reading.

What You Can Do

With tongue firmly in cheek, one thing you can do is read Swiped: How to Protect Yourself in a World Full of Scammers, Phishers and Identity Thieves (full and shameless disclosure: I wrote it, and it is now available in paperback).

Since the book came out last year, the problem has gotten much worse. In fact, 2016 brought a new all-time high, with an estimated 15.4 million U.S. consumers becoming victims in one stripe of identity-related crime or another. That’s up from 13.1 million the year before.

You can keep your information from being used by scammers by placing a freeze on your credit. This will make it impossible for anyone to utilize your credit without the authentication to thaw it (including you). In addition, you need to practice what I call in my book, The Three Ms:

• Minimize your exposure. Don’t authenticate yourself to anyone unless you are in control of the interaction, don’t overshare on social media, be a good steward of your passwords, safeguard any documents that can be used to hijack your identity.

• Monitor your accounts. Check your credit report religiously, keep track of your credit score, review major accounts daily if possible. (You can check two of your credit scores for free every two weeks on If you prefer a more laid-back approach, sign up for free transaction alerts from financial services institutions and credit card companies or purchase a sophisticated credit and identity monitoring program.

• Manage the damage. Make sure you get on top of any incursion into your identity quickly and/or enroll in a program where professionals help you navigate and resolve identity compromises — oftentimes available for free or at minimal cost through insurance companies, financial services institutions and HR departments.

It says somewhere in the Bible that the fastest runner doesn’t always win the race, and the strongest warrior doesn’t always win the battle. We learn in the same verse that the wise can go hungry and even the most talented among us can be dirt poor. If the scribes had lived today, they would have added that even the most careful among us can become victims of an identity-related crime.

This story is an Op/Ed contribution to and does not necessarily represent the views of the company or its partners.

Image: Ridofranz

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Are LendingClub’s Troubles Bigger Than Just One Company?


The spin factory is working extra shifts these days.

No, I’m not talking about the upcoming presidential election. Rather, I’m referring to the surprisingly quick and robust efforts on the part of financial services industry advocates to regain control of the narrative following a so-called FinTech (financial technology) poster child’s fall from grace.

LendingClub Corporation was the first peer-to-peer finance company to have an initial public offering. Given the breathtaking $8.5 billion valuation it garnered at the time of its 2014 debut on the New York Stock Exchange, it’s clear that expectations for the company, and the edgy sector of financial services it represents, were high.

Although the firms that share space in FinTech vary in their approaches to the consumer and small-business demographics they target, the two things they have in common are super-fast online processing (thanks to algorithmically based credit underwriting) and limited regulatory oversight because none are depository institutions—no savings and checking account balances are at risk. At least not yet.

Lately, these two commonalities have begun to attract negative attention for reasons I’ll discuss in a moment. At first blush though, it appears as if the LendingClub scandal involves an isolated instance of alleged impropriety on the part of some members of senior management.

Until you take a closer look.

LendingClub’s CEO Renaud Laplanche resigned after the company disclosed that it had misrepresented key characteristics of the loans that were sold to an institutional purchaser. Bulk-loan purchase agreements are specific about what constitutes a so-called eligible contract — such things as bona fide, legally enforceable documentation and the timely receipt of installment payments to the point of sale.

So the $22 million question (the value of the subject transaction) is: Why would a company the size of LendingClub allegedly jeopardize the reputation it has with customer-borrowers, institutional and retail investors that trade in its stock, and the sources on which it depends to fund the loans it originates, all for a deal that represents less than 1% of the loan volume the company booked in just the first quarter of 2016?

The answer could be the canary in the FinTech coal mine.

Are There Problems With the Credit Underwriting Process?

I learned three important lessons the hard (costly) way during the slow-motion train wreck of the Great Recession: Sell when the company builds a corporate Taj Mahal, when the CEO leaves for any reason other than dropping dead at his desk, or when senior management speaks nihilistically about “new economy-related paradigm shifts.”

FinTech companies — along with the private equity firms and venture capitalists that have pumped billions of dollars into their operations — seem to believe they are the future of low-dollar-value lending. Thanks to the advent of big data-driven algorithms, what once took a ridiculous number of weeks, if not months, for institutional lenders to complete is now accomplished within hours online. That the activities of these nonbank institutions aren’t subject to the same regulations as are their traditional banking counterparts doesn’t hurt either.

I believe this is the real story behind the news story.

The credit underwriting process isn’t singular — science vs. art — it’s binary, particularly in regard to transactions that involve borrowers who are unbanked (no institutional relationships and/or credit history) or under-banked (limited relationships and/or tarnished credit), both of which constitute FinTech’s demographic mainstays. That’s why any lender that believes it’s developed a magical mathematical mechanism (i.e., algorithm) to take all this into account but neglects to test its hypothesis by re-processing a statistically significant sample of credit failures that occurred at various points during an end-to-end business cycle (boom to bust to boom) is, in my opinion, kidding itself. Why go through all that trouble for a comparable result — or worse?

Considering that so many FinTech lenders didn’t appear on the scene until after the last meltdown, coupled with the fact that the historical credit-performance data they’d need to test their prospective underwriting methodologies reside within the very institutions they propose to supplant, one can’t help but wonder if the next credit cycle — which would be the companies’ first — may well be their last.

And then there’s the structure of these loan products.

Small-dollar, short-term lending is a tough business. There simply isn’t enough profit in a $1,000 loan that’ll be on the books for only a month or two. Not without automating the process, hyping the hell out of the rates of return (i.e., APRs, which mathematically combine interest rates and fees), setting up shop in accommodating jurisdictions (there’s a reason why many credit card companies call South Dakota home) and devising products that encourage repeat use (payday and merchant advance loans are good examples).

The Need for a Watchdog

That leads me to the second problem facing FinTech companies: The growing call for regulatory oversight at the federal level to override individual states.

So whichever comes first — an economic downturn or amped-up regulations — you can probably look forward to a frenzy of mergers and acquisitions to follow. My guess is that the old-economy banks will take the lead because they’d stand to pick up loan portfolios and tech platforms all on the cheap.

The question is, how will consumers and small business fare if this happens?

They’ll do well if the banks successfully translate what they learn from their nonbank counterparts into an ability and willingness to lend to the under-represented demographics upon which FinTech currently relies.

They’ll also do well if the surviving FinTech firms combine new- and old-school approaches for underwriting credits as they transform their existing loan products into ones that are more reasonably structured and priced.

Don’t hold your breath though. If history teaches us anything, it’s that the more likely outcome will be yet another credit crunch for small-time borrowers. That is, until the banks realize they need more business or a fresh crop of entrepreneurs come up with something new. Again.

This story is an Op/Ed contribution to and does not necessarily represent the views of the company or its partners.

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