What Is Banking Fraud and How Can You Avoid It?

8 min read
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According to the FTC, Americans reported losing almost $8.8 billion to fraud in 2022—a 30% increase over the prior year. Given that more people are shopping online and with their phones, it’s not surprising that nearly half of all reported fraud cases were related to online banking.

Bank fraud is constantly evolving. Protecting yourself against it means learning to defend against a variety of threats such as phishing, social engineering, synthetic identity fraud, and scammers who may try to impersonate your bank. In this article, we focus on four common types of bank fraud, and provide some tactics to help you keep your accounts safe.

What Is Bank Fraud?

Bank fraud is an illegal act that involves using deception to obtain money, assets, or other property from a financial institution or its customers. Bank fraud can take many forms, including accounting fraud, check kiting, card skimming, and advance fee loan scams where a fraudster promises you a loan or credit card in exchange for an up-front fee.

Banks invest heavily in security measures to prevent and detect fraud. Much of this takes place behind the scenes. For example, your cards and accounts are monitored continuously for signs of unauthorized use, and your bank or credit union may also have added multi-factor authentication (single-use passcodes delivered by email or text for added security during sign-in) or card features that let you turn your credit or debit card on and off for safety.

It’s also critical that you personally take measures to protect your accounts and data. While all consumers are at risk of fraud, those under the age of 34, immigrants, college students, women, and senior citizens are especially vulnerable and need to take extra precautions. For example, you might avoid using public Wi-Fi to shop or make financial transactions and consider shredding any documents that may contain your sensitive or private financial information. And while these tactics are help prevent fraud to some degree, recent changes in consumer behavior—notably, increases in shopping and transacting online and by mobile device—have created a surge in online bank fraud tactics such as:

  • Phishing and social engineering: Emails, texts, phone calls, or social media posts and direct messages deceive you into providing passwords, account information, or other personal data by posing as a legitimate company.

  • Stolen or illegally purchased data: Scammers hack into a financial institution’s data or purchase stolen card credentials, passwords, and personal data.

  • Credential stuffing bots: Automated systems systematically guess usernames, passwords, and 3-digit CVV codes to gain access to accounts or apply for new ones using your identity.

  • Synthetic identity theft: A real person’s Social Security Number (SSN) is stolen and then applied to a fake name, date of birth, email account, mailing address, and phone number to create a new, separate identity.

Common Types of Online Bank Fraud

What does online bank fraud look like in real life? Here are four common types of online bank
fraud and a few defensive moves you can make to help prevent, or circumvent, it:

1. Scammers take over your bank account.

Criminals may use your account information to gain access to your account, change your passwords and contact information, and siphon off your funds. They may obtain your credentials by any combination of phishing or social engineering, purchases on the dark web, bots, as well as cybersecurity breaches at banks, investment firms, or any other company that stores your card or account information.

Defensive moves: Secure your account and be wary of responding to any kind of unsolicited call or message. Use the tips below as a starting point:

  • Beware of text messages and email asking you to click a link and log into your account.

  • Don’t answer phone calls from numbers you don’t recognize, but also be cautious with calls that appear to be coming from known contacts: Scammers can fake the numbers that appear on caller ID. For example, if a “bank representative” caller asks for information they should already have–such as your account number—don’t be afraid to end the conversation and call back using a number you know is trustworthy. A service rep who is truly concerned with your security will accept that decision gracefully; a scammer will do all they can to keep you on the call. Hang up if necessary.

  • Monitor your bank accountsregularly for suspicious activity.

  • Set up multi-factor identification on your accounts for an extra layer of security.

2. Identity thieves open new accounts.

The FTC received 156,099 reports of consumer identity theft related to bank fraud in 2022 , a 21% increase over the prior year. Identity theft is when identity thieves steal your personal data and use it to open new accounts in your name. They may also file false tax returns to collect your tax refund or collect unemployment checks or Social Security benefits and other government funds using your identity. There are various ways to help prevent this.

Defensive moves: Be aware of suspicious activity—for example, receiving an unexpected
1099-G form showing unemployment benefits you never applied for. Review your credit reports for new accounts and consider setting up credit monitoring to be notified of new activity in your credit files. Federal law gives you the right to get a free copy of your credit report every 12 months from each of the three nationwide credit reporting agencies. However, through December 2023, you can get your free credit report weekly from each of the three credit reporting agencies at AnnualCreditReport.com.

Credit reporting agencies offer services that may help both before and after you suspect you’re the target of identity theft.

  • Fraud alerts place a notice on your credit report that you have been a victim of fraud or
    identity theft and notifies lenders that they should verify your identity before processing any loan or credit card applications they receive in your name. Requesting an alert on your credit file at any one of the three national credit bureaus (Equifax, Experian, and Transunion) automatically places one on your credit files at all three bureaus. Fraud alerts last for one year, but you can renew them indefinitely. Placing a fraud alert is a free service that you can easily do online.

  • Credit freezes restrict access to your credit report so new credit accounts can’t be opened in your name. To freeze your credit reports, you must contact each credit bureau individually. In the event you want to open a new loan or credit card account yourself, you’ll need to contact all three credit bureaus again to “unfreeze” your credit report(s) temporarily. Requesting, or temporarily removing, a credit freeze is a free service that you can easily do online.

  • Credit monitoring is a service that issues alerts when hard inquiries are made to your
    credit report, new accounts are opened, address and name changes are made to your credit file, and your personal information is detected on the dark web. Free credit monitoring is available through all three credit bureaus, as well as some credit card issuers and banks. Paid credit monitoring is available from the three credit agencies as well as
    private identity theft protection companies.

3. Imposters ask you to transfer money to them.

Impersonation scams have a thousand faces. You may hear from the “IRS” demanding
immediate payment in gift cards. You may start an online romance, only to be hit up for emergency funds. Scammers may pose as mobile phone providers, utility companies, or online merchants, contacting you about account problems or pending refunds. Scammers often ask for payment by bank transfer, wire transfer, gift cards, or cryptocurrency. 

Defensive moves: Be wary of anyone who asks for money, whether it’s someone you met online or someone who contacts you out of the blue. And be doubly aware of any demand that you act right now to “prevent catastrophe.” As a rule, government agencies and legitimate businesses like utilities send payment-collection information by postal mail. If you owe them money, they will give you a reasonable amount of time to pay. Legitimate businesses will not call you demanding immediate action to prevent your service from being shut down. Legitimate businesses also won’t demand you pay them using a gift card.

4. Criminals impersonate your bank.

In this variation on an imposter scam, criminals pretend to be your bank, looking for account information or trying to collect money from you. Here’s an example: Scammers reach out with a loan offer that features a low interest rate and/or a generous loan amount. They provide a fake loan application for you to fill in with all the personal information they need to steal your identity. They may also ask you to pay loan fees via gift cards or wire transfer.

Defensive moves: Check out any bank or financial institution that offers you a loan or credit
card to make sure it’s legitimate—especially when they reach out to you—and verify the “bank” that contacted you is who they say they are. Before you submit any application,provide any personal data, or send any money, research the lending institution online and contact them using information listed on their website. Ask if the offer you received really came from them.

Be skeptical of any financial institution that requests fees up front before a loan is processed. For example, LendingClub Bank never asks for payment before a loan is approved or processed. Be leery if a financial institution demands payment in gift cards, prepaid debit cards, or cryptocurrency. Only wire money if you’ve confirmed that the loan application or other transaction and the financial institution requesting it are legitimate.

What to Do If You Notice Bank Fraud

If you think you’ve been scammed, take immediate action by contacting your financial institution and the credit reporting agencies to investigate and/or report any of the following issues:

  • Suspicious activity on your bank statement, credit card account or credit report;

  • New loans or card accounts you don’t recognize;

  • Calls, texts, or emails from someone impersonating a loved one, a company you do business with, or your financial institution; or

  • Any suspicious request for account information, personal data, or payment. 

Call your financial institution: If you think you’re a victim of bank fraud, contact your financial institution immediately. They can put a fraud alert on your account, freeze it, or close it proactively. Also, make your bank or credit union aware of any suspicious communications that claim to come directly from them. LendingClub members can contact Member Support at 888-596-3157. Your financial institution may ask you to file a report with your local police as well.

Contact credit reporting agencies: All three credit reporting agencies (Equifax, Experian, and TransUnion) can put a fraud alert on your credit report and/or freeze it. They may also provide credit monitoring for a monthly cost, if you feel this is a service you may want.

Report fraud to the FTC: File a report with the FTC to help them track fraud trends and compile data on how much fraud is occurring in the U.S.

The Bottom Line

Bank fraud is an ongoing problem that appears to be getting worse. And though it’s hard to thwart fraud entirely, you aren’t defenseless against some of the most common types of bank fraud happening today. Keeping a close eye on your accounts and credit, being skeptical of unsolicited requests for information or money, and taking fast action when a problem is detected can all help minimize your exposure to fraud—and help stop it if it occurs.

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