Call it the Manti Te'o credit card scam, a shoutout to the University of Notre Dame football player who was snookered into dating a fake woman online.
Eighteen people were charged with allegedly conjuring up identities to obtain credit cards and swindling at least $200 million from the card issuers. The elaborate con also underscores how consumers ultimately end up swallowing the fraud losses.
Federal agents on Tuesday rounded up 13 people for the alleged bank fraud -- the largest credit card scheme charged by the Department of Justice -- while four others were already in custody, according to the Federal Bureau of Investigation. The FBI didn't release details about the remaining suspect.
The bureau claims the suspects created more than 7,000 false identities and fraudulently obtained more than 25,000 credit cards. The bureau says financial institutions lost a confirmed $200 million, but that number could grow as banks continue to tally losses from the scam, which was nothing short of elaborate.
"There's a difference between a quick nickel and a slow dime -- and this is a slow dime," says John Ulzheimer, president of consumer education at SmartCredit.com. "These fraudsters created people out of thin air and did something that most fraudsters aren't patient enough to do: apply for credit, get credit and build credit before ripping the banks off."
First, the suspects allegedly created bogus identification documents and credit files to make up an identity. The suspects then allegedly created sham businesses that processed phony transactions with the fraudulent credit cards. The card issuers unwittingly would pay the sham businesses for the fake credit card transaction and the suspects would pocket the money. The suspects also enlisted other businesses to run up mock transactions and would split the money with the business owners.
The sham businesses also fed payment history on fictitious lines of credit to the credit reporting agencies to boost the credit of the fake identities. The suspects used these fake identities with high credit scores to obtain credit cards. They either ran up charges they never paid back or used the cards at the sham businesses to extract money from the card issuers.
The suspects are from New York, New Jersey and Pennsylvania and range in age from their 30s to as old as 74. They each face a possible maximum penalty of 30 years in prison and a $1 million fine.
While the scheme didn't involve identity theft of real people or the unauthorized use of legitimate credit cards, consumers still get a raw deal because financial institutions pass the cost of fraud to its consumers.
"This is one of the frustrating parts of the cost of credit," Ulzheimer says. "To an extent we can control the cost of our credit by having good credit and shopping around. What we can't control is an industry that builds in the cost of fraud to the interest rates given to consumers."
Ulzheimer doesn't expect this latest scam to affect credit card interest rates, though. While $200 million sounds lucrative to the average Joe, it's peanuts for credit card companies, he says.
"The rate is built to absorb fraud of this size," Ulzheimer says.
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