Inflation: 5 ways it’s affecting fraud
Inflation—it’s a word that’s become all too familiar for many consumers. Although inflation typically brings to mind higher prices and a deeper strain on household budgets, we often overlook a harmful byproduct: financial fraud. Here, we’ll examine five ways inflation heightens fraud risk, putting significant pressure on lenders and consumers.
- Increased fraud schemes: The US Consumer Price Index (reflecting the overall cost of living) increased by 6.5% in 2022, compared to a 1.4% increase in 2020. International markets, where many scams originate, have typically seen similar or higher inflation figures. As the cost of living increases, fraudsters see a greater incentive to commit identity theft, or other fraud schemes, to make up for diminished purchasing power.
- Increased pressure on businesses: Just as it deeply affects consumers, inflation can wreak havoc on the ability of a business to maintain profitability and cash flow. Additionally, higher interest rates implemented as inflation-fighting measures can close off cash flows from banks and investors alike. This can lead to reduced oversight and controls as businesses struggle to drive up sales, exposing them to fraud.
- Tight credit markets encourage fraudulent applications: Higher interest rates meant to curb inflation can make it expensive for consumers to borrow. To secure more favorable terms, some may misrepresent their creditworthiness by overstating their income or underreporting their liabilities on loan documents.
- More opportunities for scammers: Inflation can create opportunities for scammers to take advantage of people who are struggling financially. For example, they may offer fake investment opportunities that promise high returns to prey on diminishing buying power.
- Distrust in financial markets: Savers who see their incomes and investments lagging behind inflation may be less skeptical of largely unregulated commodities, such as cryptocurrencies, that offer less recourse for fraud victims.
Although inflation has significant effects on fraud, that doesn’t mean there isn’t hope for protection and prevention. Point Predictive’s solutions rely on machine learning and natural intelligence (NI) to identify current fraud trends and mitigate risks for clients.
We work with a broad range of financial institutions, automotive lenders, and dealerships to implement solutions that protect our customers from high-risk borrowers and prevent targets of fraud from being negatively impacted. To learn more about our solutions and how they can benefit you, talk to one of our solution experts.