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Fraudulent direct debits at record high

Press release: 19/11/2010

Over 97,000 Brits have fallen victim to criminals setting up fraudulent direct debits from their accounts, with this number set to escalate over the next three years, according to new research.

The findings from home insurer LV=, conducted by the Centre for Economics and Business Research (CEBR), show that so far this year 26,000 Brits found fraudsters taking out regular direct debit payments in their name, with an average of £540 going missing before they noticed and stopped it.

Over the last four years, the number of criminals gaining access to victims' bank accounts directly in order to set up regular payments has risen by 288% from just 6200 reported cases in 2006. This huge increase has been driven by the introduction of Chip and PIN meaning it's harder for fraudsters to steal someone else's card and pass it off as their own. In fact in 2009 the number of 'traditional' card fraud cases fell by 4% reflecting the change in tactics by fraudsters to alternative ways of committing crime.

Direct debit payment fraud now accounts for around 10.6% of all identity fraud cases, rising from 0.01% of all cases in 2001. And the LV= report reveals the problem is set to grow to 41,000 cases a year by 2013, equating to a 57% rise in the coming three years.

Direct debit fraud occurs when a fraudster sets up a payment from a victim's bank account to pay for a service (e.g. a mobile phone account) that the fraudster benefits from. Fraudsters obtain personal details in the same way they would with other types of identity fraud. Common methods including redirecting a victim's post to a new address or gaining online banking details via 'phishing' scams. Looking specifically at fraudulent mobile phone accounts, the set-up of these soared by 69% in 2009.

Reflecting the increased likelihood of people now becoming a victim of fraud, LV= includes a free of charge identity fraud helpline as part of its home insurance policy.

Experts believe one reason for this rise is the difficulty in obtaining credit as a result of the recession, leading to a surge in fraudsters attempting to use other identities in order to obtain goods and services. The recent boom in direct debit fraud has also been driven by the proliferation of online services, with fraudsters now able to set up contracts and other agreements without the need for stringent ID checks.

Other examples of direct debit fraud include payments for gym memberships or TV subscriptions the fraudster uses and even payments made directly to the fraudster's bank account. These are set up by the fraudster hacking into the victim's account online and then setting up a direct debit but labelling it with the name of a commonly used service provider, leading the victim to think it's a legitimate payment.

Fortunately under the direct debit guarantee system, victims will get their money back if they are a victim of this type of fraud, however consumers may unwittingly be adding to the problem as many continue to be lax in checking their bank balance with one in five (21%) admitting they only check their balance once a month.

The research reveals that those who fail to keep regular tabs on their outgoings will lose 10% more than someone who regularly does check their statement if they are stung by fraudsters - typically losing £611 compared to £540 for those who check their bank statements at least once a month.

LV= is therefore urging people to keep a watchful eye on their bank statements to ensure they haven't fallen victim to direct debit fraud.

The report has also discovered that the problem is being exacerbated by old or duplicate direct debits. According to the research, the number of forgotten or duplicate direct debits paid out every year is at a record high, with £385 million 'wasted' in unnecessary direct debits last year by Brits. Forgotten direct debits take bank account holders on average four months to notice and cost around £190 each time.

John O'Roarke, managing director of LV= home insurance, said: "The past few years have been financially challenging for many and an indirect result of these struggles has been a increase in personal and identity fraud. Yet while most of us are aware of the need to protect our card details, the increase in fraudsters setting up direct debits in victims' names proves the need for everyone to regularly check their banks statements and ensure they're not paying out for someone else's mobile phone account or gym membership or any other direct debit they don't recognise. And with the number of direct debits being paid unnecessarily at an all time high, we'd urge account holders to check they're not making duplicate or out of date payments.

LV= home insurance customers who think they might have been stung by fraudsters can contact our identity fraud helpline for help and support."


LV= is a registered trade mark of Liverpool Victoria Friendly Society Limited (LVFS) and a trading style of the Liverpool Victoria group of companies.

LV= employs over 4000 people, serves around 3.8 million customers and members, and manages around £9.7 billion on their behalf. We are also the UK's largest friendly society (Association of Friendly Societies Key Statistics 2008, total net assets) and a leading mutual financial services provider.

LVFS is authorised and regulated by the Financial Services Authority register number 110035. LVFS is a member of the ABI, AMI, AFS and ILAG. Registered address: County Gates, Bournemouth BH1 2NF.

All research unless otherwise stated was carried out by ICM. Fieldwork took place online between 6 - 12 October and was weighted to nationally representative criteria. ICM interviewed a sample of 2013 UK adults aged 18+ and 1284 UK adults who had fallen victim to ID fraud.
Additional analysis was conducted by the Centre for Economic and Business Research with supporting data sourced from CIFAS.