Warning: HELOC Check Fraud on the Rise
- HELOC records are being used for check fraud
- The ICBA has been prompted to issue a warning
- Machine learning and AI detection mechanisms are effective defensive tools
Many individuals within the banking sector and home owners are familiar with a "Home Equity Line of Credit" or "HELOC" -- a type of second mortgage that allows you to borrow against the value of your home to make purchases as needed and repay them over time. While a HELOC is a great way to leverage the value of a home to do things like make improvements on your house, they are unfortunately not immune to fraud.
As noted by Experian, HELOC fraud can occur in several ways including:
- Create or write counterfeit HELOC checks
- Trick your lender into changing your account information
- Move money between your accounts before stealing it
- Create an online profile to hide their tracks
The rise in this fraud tactic has prompted the Independent Community Bankers of America (ICBA) to issue a warning.
In the past 24 hours, several ICBA members have reported a new form of fraud they have experienced in their banks this week: check fraud related to home equity lines of credit. Members of ICBA's Check Fraud Task Force have also reported an uptick in HELOC-related check fraud.
How Fraudsters are Exploiting HELOC Accounts
Unlike a checking or savings account, activity on HELOC accounts tends to be much lower, and therefore less scrutinized.
ICBA President and Chief Executive Officer Rebeca Romero Rainey notes:
What caught my attention is the fact that fraudsters are using information available in public records to create checks drawn on HELOCs. HELOC documents often contain all the information a fraudster needs to generate checks, including the customer's name, address, lender, signature, and account number.
The ICBA advises the following to decrease the chances of HELOC fraud:
- Not printing HELOC account numbers on documents
- Reviewing HELOC checks processed
- Advising customers to regularly review their HELOC accounts
This stolen information often lands on the dark web/Telegram to be sold to anyone who wants to commit fraud.
The article goes on to advise banks to report incidents to the FBI's Internet Crime Complaint Center.
How Fraudsters are Exploiting HELOC Accounts
In a article at Home Equity Lending News, AI and machine learning detection mechanisms are recommended as a key technology to stop HELOC check fraud. But financial institutions need to understand that there are specific AI and ML technologies that are most effective for the minimal transaction nature of HELOCs.
Systems that rely on analyzing the behaviors of an account (behavioral analytics and some transactional analytics) are less effective because there is simply not enough historical data to which it can compare new transactions. For instance, if a person opens a HELOC for $100,000.00, and writes three checks -- $25,000 to Mike the flooring contractor; $25,000 to the local hardwood flooring retailer, and; $25,000 for the kitchen cabinet retailer -- a fraudster can obtain the account information and write a counterfeit check for $10,000 to "Fraudster Name." Behavioral systems will most likely not be able to detect whether this is fraud.
However, image forensic AI is different. Because the models have trained on the three previously cleared items, the counterfeit check will be interrogated for different characteristics such as the check stock, writing styles of the check (fonts or hand writing), and signature verification. Any perceived issues will be flagged for review by the system, wherein a fraud analyst can review and make a determination as to whether the check is fraudulent.
Whenever money is involved, fraudsters will naturally appear. Financial institutions must make every effort to protect themselves and their customers.