Bust-Out Fraud: Statistics & Financial ImpactThe High Cost of an Explosive Getaway
Digging Into Bust-Out Fraud Statistics & Numbers to Examine the True Impact
Who’s the victim in a bust-out scam?
On the surface, it may appear that the issuing bank is the primary victim. While banks do experience fraud losses, it’s individual merchants like yourself who may ultimately have to bear the brunt of the burden.
In this chapter, we’re gonna explore the real-world impact of bust-out fraud to help you understand how much damage this insidious scam can really do.
Estimated annualized losses for banks as a result of bust-out fraud.
Source: TransUnion
Average financial loss resulting from a single bust-out scam.
Source: TransUnion
Percentage of customers who exhibit bust-out account behavior.
Source: TransUnion
Percentage of loan and credit card losses attributed to synthetic identities.
Source: Experian
Bust-Out Fraud
Scammers often look like legitimate cardholders... at least until they suddenly don’t. Take bust-out fraud, for instance. This happens when a scammer uses a synthetic identity to open up credit cards with issuing banks, build up a credit history, then max out the card and disappear.
The Financial Impact of Bust-Out Fraud
Bust-out fraud occurs when criminals max out high-limit accounts and disappear, leaving losses that initially look like bad debt and may take months to uncover. The scheme causes massive financial damage—sometimes billions annually—impacting banks, card networks, merchants, and even victims whose stolen identities lead to chargebacks and added costs.
When their bogus account holder’s credit limit goes high enough (typically in the $10,000 to $20,000 range), the bust out happens. The crook maxes out all the cards and available cash advances, then simply vanishes. The anonymity of the internet and the absence of any official connection to the original Social Security number, makes the fraudster virtually impossible to trace.
Worse, the crime probably won’t immediately be recognized as fraud. At first, each of the different stakeholders will only see the loss to their own business and write it off as bad debt. The true scope of the crime isn’t revealed until all the various pieces are traced back to the SSN’s true owner. Unfortunately, that could take months.
An individual whose SSN is tied to a bust-out fraud scam has a lot to lose. That said, a bust-out is also a complex and costly problem for banks, card networks, and merchants. Technology is compounding the problem, as bots and other types of automation simplify the creation of fake IDs, streamlining the process of opening hundreds — even thousands — of bad credit lines.
One organized credit card fraud ring cost financial institutions over $200 million in the period between 2003 and 2016. This scam involved 7,000 identities and more than 25,000 unique credit cards. This is just one instance; some reports suggest losses could be as high as $6 billion annually.
Issuers may absorb some of these costs, but the sad truth is that most of this burden will trickle down to merchants. Adding insult to injury, cardholders who fall victim to the scam will often file chargebacks to recover their loss. Substantial chargeback fees would make the merchant’s consequences even greater.
