We can blame it on the fact that credit grantors are too tolerant of potentially fraudulent applications, according to a study by University of California lecturer Chris Jay Hoofnagle.
Credit Grantors Deemed Too Lenient
The study, titled “Internalizing Identity Theft,” looked at a sample of six victims of identity theft to find out how the fraud went unnoticed. Hoofnagle studied 16 impostor applications for credit or medical services and found that all 16 were granted despite glaring errors. Some of the errors on applications included incorrect addresses, phone numbers, dates of birth, social security numbers and driver’s license numbers for the supposed applicants. The most obvious mistake was a clearly misspelled last name on a credit application — an application that was granted.
Hoofnagle argues in his study that credit grantors do not pay enough attention to fraud risk as compared to other factors such as credit risk when approving credit. He found some credit granting companies used fully automated ways of processing new accounts and that anti-fraud efforts were often deemed too costly.
“Anti-fraud efforts cost money and are subject to diminishing returns,” wrote Hoofnagle. “And thus credit grantors will not try to completely eliminate identity theft.”