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No credit check bank accounts

Prevention, Better Than Cure!

Its time financial institutions initiate strong measures to curb fraud!

Over the past few years, the banking industry has been affected by fraudulent transactions. Financial institutions lose billions of dollars each year in the way of deposit-account thefts. According to American Bankers Association, the number of no credit check bank accounts thefts in 2001, have touched USD 4.3 billion. And since then, the figures have only doubled every two years.

In the past, committing fraud would have required expertise. Today its as easy as drawing a cheque. Thanks to the Internet! Many institutions turn a blind eye to such fraud, dismissing it as a normal loss in the course of business. Experts, however, opine that neglecting theft amounts to encouraging it.

In view of the growing concern over bank frauds, the Federal Reserve in association with Federal Trade Commission and such other bodies have proposed a rule that entails financial institutions to implement theft prevention programs.

The proposal also states that the programs should include policies and procedures to detect, prevent and mitigate identity theft in connection with no credit check bank accounts and existing accounts as well.

Identity theft

Identity theft is one of the major bank frauds. Fraudsters steal critical customer information, such as the social security number, driver licence number, or bank account number. He then uses the information to obtain credit.

In a Garner survey of US households in 2003, it was established that individuals who are close to the bank customers, commit nearly more than half of all identity thefts.

Despite the banks fighting back fraud with ever-increasing ways to detect and contain them, the identity thieves incessantly fine-tune their methods as well. Nessa Feddis of the American Bankers Association observes, the criminals are like water: They see an obstacle; they try to go around it.

Many banks and credit card issuers, that extend financial credit to consumers do not recognise identity theft as fraud, and instead write it off as a credit loss, says Avivah Litan, vice president and research director at Garner. As a result, the victims of identity theft have reached 9.9 million between mid 2002 and mid 2003, as reported by Federal Trade Commission.

The 2003 Federal Trade Commission report also estimated the identity theft losses to financial institutions to have reached USD 47 billion.

Cheque kiting

Cheque kiting is another common form of bank theft. Cheque kiters typically open several accounts with different banks with minimal fund deposits. These accounts are then used to obtain money for short-term use. Money is withdrawn from one bank on the strength of the deposit of a cheque with a second bank. And that cheque is covered by another one from a third bank, and so on. The scheme works till one of the accounts goes bankrupt, or the cheque bounces because of lack of funds. The cheque bounce is known as a Non Sufficient Fund (NSF) cheque.

Writing a currently dated cheque represents that there is sufficient money in the account to cover the cheque. Therefore, an intentionally written NSF cheque is considered fraud and the offender is liable to face criminal charges.

The OTB case

The Overseas Trust Bank (OTB) case is a typical example. Before the bank collapsed in 1985, it was the third largest local bank in Hong Kong. Fraud at OTB began with the involvement of its top officials in the cheque kiting activity. The cheque-kiting scheme started in small amounts, which then escalated to huge sums. Later, with the cheque kiting going awry, the bank collapsed.

The above mentioned frauds are only a sample. The Internet explosion and its ability to hide a criminals identity have prompted fraudsters to make the most out of the present scenario.

The famous Nigerian Letter Scam

Dubbed the Four-One-Nine scam, this was famous the world over as the Nigerian letter scam. Initially, the fraudsters took the help of postal services. With the advent of the Internet, the fraudsters have shifted their operations online.

The Internet Fraud Complaint Centre (IFCC) has received more than six hundred complaints on the Nigerian Letter scam. The monetary loss suffered by the fraud victims was USD 31,000

The modus operandi

The fraud was committed in this manner. The fraudsters would send unsolicited e-mail or fax to unassuming victims. The message promises the victims a huge sum of money for utilising their no credit check bank accounts to send funds abroad. The fraudsters would identity themselves as chief auditors of a bank, chief security officers or as family relatives of the deceased. They would then request the victims to give them their telephone number, fax number, address and bank account information.

The fraudsters then ask the victims to pay money upfront. The money was supposed to meet miscellaneous expenses in processing and transferring funds to the overseas account.

This would follow by a request for more money and would continue either till the victims suspend the contract or run out of money.

How to prevent fraud

Awareness to the various ways in which fraud can be committed and education as to how this can be prohibited can only help prevent fraud. The use of modern technology in simplifying the bank operations can to some extent curtail such fraudulent activities. For instance, the use of digital imaging technology can enable banks to process cheques at a much quicker rate and thereby detect fraud in the early stages. But, even the best technology has its own limitations. Though it allows for a quick processing, it doesnt allow banks to scrutinise physical cheques for ensuring protection against different kinds of fraud.

Frank Abagnale, fraudster turned banking industry consultant, says that financial institutions could prevent theft by concealing vital information from its employees. Most importantly, banks and other financial service providers should implement solutions that effectively monitor fraud.

Its evolution time!!!

Its time the banking industry has got serious about preventing fraud. Intense competition and lower margins no credit check bank accounts have made banks to stay on their toes. In such a scenario, fraud cannot be considered to be a normal loss. If they do, then they are inviting trouble.

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