Canadians' mounting financial pressures could fuel uptick in fraud

Affordability challenges pushing consumers toward 'slippery slope' in debt, says expert

Canadians' mounting financial pressures could fuel uptick in fraud

As incidents of fraud across all industry sectors start to return to pre-pandemic levels, a new report from Equifax Canada is warning lenders that mounting financial pressures on Canadians could cause a spike in all types of fraud in the final months of 2022, especially mortgage and credit card fraud.

Despite a short-term easing in cases, the number of mortgage fraud cases is still higher than it was in 2019. Comparing Q2 2022 to Q2 2021, the rate of mortgage fraud decreased by 13.3%, but it is still 29.5% greater than it was before to the pandemic.

With applicants manipulating their financials, income information, or supplying contradictory information, first-party fraud is the most common type of fraud in mortgage applications.

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According to Equifax statistics, financial data is misrepresented in 92% of mortgage fraud cases, including fabricated bank statements, income and job information, or contradictory information.

Carl Davies, head of Fraud & Identity at Equifax Canada, said, “The housing market has cooled with rising interest rates and it’s becoming more difficult to qualify for a mortgage, which may tempt some people to misrepresent their financial information.”

“There was a huge increase in fraud rates in 2021 with record high mortgage applications coupled with the race to qualify for high loan amounts. It’s a slippery slope because homebuyers who are misrepresenting their finances are likely taking on debt they cannot handle, and they are breaking the law by committing mortgage fraud,” he added.

There was a sharp rise in digital fraud throughout the epidemic, particularly for credit cards, banking, and deposit applications.

Identity fraud continues to pose the biggest threat to credit card applications, with 56% of fraudulent applications being identified as identity fraud, even though the overall rate of credit card fraud reduced by 13.5% in Q2 2022, and in-person banking has returned.

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When compared to Q2 2021, the auto industry fraud rate decreased by 16.6% in Q2 2022, while the number of applications decreased by 3.9%. First-party fraud accounts for over 90% of car fraud, although identity theft is also becoming more prevalent in auto applications.

After the government's pandemic support programs were discontinued, there were significant changes in banking and deposit fraud. Comparing Q2 2022 to Q2 2021, the number of applications increased by 28.2%, and fraud rates decreased by 16.6%.

In Q2 2022 compared to Q2 2021, the telecom industry's fraud rate decreased by 3.2%, but the total number of applications rose by 25.7%. With a high in Q2 2022 for fraud that takes place to assist the acquisition of hardware, fraud trends in this area are reverting to patterns observed in 2019.

“Early signs of financial stress are visible across consumer segments,” added Davies. “Unfortunately, the economic landscape is ripe for us to see a quick uptick in fraud for all industry sectors.”