One-third of Americans say lying on credit applications is acceptable

A new survey from credit scoring data analytics company FICO highlights a challenging landscape for U.S. banks and credit unions: a significant portion of consumers say lying on credit applications is acceptable, yet they simultaneously prioritize robust fraud protection.

The findings, released Wednesday, come out of an online survey of 1,000 Americans, conducted in April and May. FICO said the survey included participants across various age and income demographics and all major U.S. regions. The U.S. survey was part of a global project surveying approximately 18,000 consumers across 18 countries.

The survey results indicate that roughly a third of Americans consider lying on applications for credit either acceptable in some circumstances or normal behavior. Specifically, 18% said, "There are circumstances when it's OK" to exaggerate income in loan applications, and 15% said, "It's normal for people to do this."

These statistics underscore the nature of first-party fraud as an everyday crime often committed by individuals, using their own name and identity. This is in contrast with third-party fraud, which tends to be well organized and often committed by criminal enterprises.

Sometimes third-party fraud looks like first-party fraud, for instance when a customer's identity has been stolen. First-party fraud can also go unidentified and written off by lenders as a credit loss.

FICO said rising cost of living appears to fuel the behavior of consumers lying on credit applications, as many consumers believe falsifying information is the only way to gain credit when their finances are stretched.

"Consumers are falsifying information in applications to gain credit, not understanding how much these so-called liar loans will stretch their finances and risk leaving them unable to repay, or even facing the consequences of committing fraud," said Adam Davies, vice president of product management at FICO.

While some individuals act opportunistically, organized fraud rings can also contribute to first-party fraud, sometimes paying individuals to use their real identities to commit fraud.

Consumers also demand stronger fraud controls

Despite their willingness to misrepresent information on credit applications, consumers also expect strong fraud protection when they face potential victimization.

Nearly one in three consumers (32%) ranked fraud protection as their top priority when opening a new account, over ease of use (25%), value for money (20%), customer service (9%) and three other categories. Overall, 56% of participants ranked good fraud protection as a top three consideration of the eight FICO asked about.

Furthermore, consumers demonstrate a tolerance for increased security measures. Three quarters (75%) of customers report they will not abandon an application due to tougher identity checks. This indicates a clear willingness among individuals to take extra steps for the promise of stronger protection.

"Our survey indicates more than 32 million Americans have been victims of identity-based application fraud," Davies said. "This is about trust, and consumers expect banks to earn it."

Customers seek both a streamlined, swift account origination experience and a sense of security, compelling financial institutions to balance customer experience with robust security measures.

Implications for banks and credit unions

For financial institutions, prevention remains paramount in fraud management, making application fraud controls and identity verification critical for stopping fraudsters before they gain access to funds.

FICO highlights that fraud protection can serve as a competitive advantage, urging banks to ensure customers trust them and "shout about the excellent fraud protection" they provide.

Davies advised institutions to "make sure fraud checks and identity proofing are appropriate and proportionate." By optimizing the balance between fraud prevention and customer experience, financial institutions can ensure that most legitimate applicants remain unencumbered by fraud checks that happen in the background.