Fraud rates expected to soar in recession, warns Equifax

Equifax Canada warns that increased financial pressure on Canadians could lead to increased fraud. (Getty Images)

Fraud rates in Canada may have fallen from levels seen during the COVID-19 pandemic, but Equifax Canada warns that increased financial pressure on Canadians could lead to a spike in fraud.

The credit reporting agency said in a report on Tuesday that increased financial stress among Canadians, spurred by soaring inflation, rapid rate hikes and fears of recession, could lead to a increased levels of fraud. Equifax Canada’s chief fraud and identity officer, Carl Davies, said first-party fraud in particular (where individuals commit fraudulent acts themselves) is expected to increase in an economic downturn.

“We find that in times of financial hardship, it is possible to increase fraudulent behavior, especially first-party fraud,” Davies said in an interview with Yahoo Finance Canadaadding that the vast majority of internal fraud involves falsifying income or providing contradictory information to lenders.

“When people are stressed because interest rates are rising and the cost of living is skyrocketing, they have more incentive to do so…Generally, in times of financial uncertainty, we generally expect to see these rates first-party fraud increase.”

One example of first-party fraud that Davies says could increase in an economic downturn is mortgage fraud. According to Equifax Canada, mortgage fraud levels fell 13.3% in the second quarter of 2022 from highs seen in the same quarter of 2021, as there was a flurry of selling activity and prices were skyrocketing in the Canadian housing market. But although the rate of mortgage fraud has fallen, it is still 29.5% higher than it was before the pandemic.

“Mortgage space, coupled with a reduced housing supply, emphasizes competition for the few available homes, which could further incentivize people to take fraudulent actions in an attempt to qualify for a mortgage,” Davies said.

In general, fraud rates have dropped from pandemic levels. The credit card fraud rate in Canada fell 13.5% in the second quarter of this year compared to the same period in 2021, which saw a spike in digital fraud. The auto fraud rate fell 16.6% in the second quarter of 2022 compared to the same period last year, due to lower claim volumes. Banking and deposit fraud also fell by 16.6% year-on-year, despite claim volumes increasing by 28.2% as government support programs ended. pandemic.

Although fraud rates have not yet increased, Davies said there has been an increase in credit card use among consumers, indicating that people may be using credit cards. as a means of meeting their financial obligations. Total Canadian consumer debt also increased, reaching $2.32 trillion in the second quarter of the year, an increase of 8.2%. The average non-mortgage debt per consumer has reached over $21,000.

“When these cracks start to show, it’s a good indication that people are going through a tough time,” Davies said.

“As this plays out over the next six to 12 months and as we continue to see impacts on consumer disposable income, there will be an increasing incentive for consumers to potentially embellish or inflate things like income, or create additional employment records that don’t. Lenders need to be aware of and prepared for this, so they don’t introduce additional risk to their business.”

Alicja Siekierska is a Senior Reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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