In 2015, financial services companies introduced microchip-equipped credit cards designed to make it harder for crooks to create counterfeit cards. Indeed, the new microchip technology is working so well in hindering credit card fraud at brick-and-mortar stores that more and more credit card criminals are adopting a new tactic.
Javelin Strategy & Research reports that so-called "new-account fraud" more than doubled in the U.S. from 2014 to 2015, with this activity now accounting for one-fifth of all fraud losses connected to credit cards, bank accounts and loan accounts. Javelin estimates there were 1.5 million U.S. victims of new-account fraud in 2015, up from 700,000 the previous year. In 2015, losses from new-account fraud totaled $2.8 billion, compared with $2 billion the previous year, Javelin says.
"New-account fraud is one of the most costly fraud types because fraudsters can cultivate high-value accounts — acting like ideal customers until they leave ... massive losses," Javelin says.
New-account fraudsters rely on stolen or fake data to obtain credit cards, secure loans and set up bank accounts. At the cornerstone of this type of fraud is a Social Security number, experts say.
Last year, 7 million people reported having Social Security numbers breached in the previous 12 months, up 63 percent from 2014, Javelin says. Social Security numbers are especially attractive to fraudsters because the numbers "maintain their value for the entire life" of a person associated with a certain number, according to Javelin.
"Social Security numbers are what bad guys need to open up new lines of credit," says identity theft expert Robert Siciliano, CEO of IDTheftSecurity.com. "This can be extremely profitable for a criminal; once they succeed in opening one line of credit, they are generally successful in opening multiple lines of credit for tens of thousands of dollars."
Normally, crooks don't pay the bills from the new credit cards they've gotten, Siciliano says, so if one of those cards is connected to your Social Security number, you could wind up with serious damage to your credit report. This, in turn, could lead to a victim of new-account fraud being turned down for a credit card or a loan, he says, or even being denied admission to a college or being rejected for a new job.
Avoiding 'New-Account Fraud'
How can you avoid being victimized by new-account fraud?
One way, Siciliano says, is to sign up for an identity theft protection service. According to the federal government's Consumer Financial Protection Bureau, these companies offer both monitoring and recovery services. Monitoring services look for signs that an identity thief might be using your personal information, such as your Social Security number, while recovery services help you fix the damage from identity theft.
"Monitoring and recovery services are often sold together, and may include options like regular access to your credit reports or credit scores," the financial protection bureau says.
The bureau cautions that no service can protect your personal information from being stolen.
Freezing Your Credit
Siciliano says the second way to avoid new-account fraud is to enable what's known as a "credit freeze." This tool allows you to restrict access to your credit report, making it harder for identity thieves to open new accounts in your name, according to the Consumer Financial Protection Bureau. The bureau says most credit card issuers need to see your credit report before you can get a card from them.
To authorize a credit freeze, visit the website of each of the three credit-reporting bureaus — Equifax, Experian, and TransUnion — search for the term "credit freeze," and go through the application process, Siciliano says. The fee to establish a credit freeze usually ranges from $5 to $10, the financial protection bureau says.
Is Fraud Here Forever?
While putting a freeze on your credit report or signing up for an identity theft protection service can deter criminals, it can't erase new-account fraud or other kinds of financial fraud, experts warn.
"I doubt we'll ever get to that point where fraud is diminished," Seth Ruden, a senior fraud consultant with payments systems company ACI Worldwide, told CNBC.com. "We've created greater opportunity for fraudsters to manifest a presence in our world, and that's the kind of place we're at now — they've done what they needed to do to secure their position in our economy."