What is Loan Stacking?
Loan stacking refers to the practice of getting approval for multiple loans or lines of credit simultaneously within a short period. Loan stacking generally happens online and can be done by either individuals or businesses. It is not illegal to “stack” loans, but financial institutions lose billions of dollars every year to the process because many loan stackers commit application fraud – intentionally default on the loans they take out.
There are three types of loan stacking: credit shopping, credit stacking, and fraud stacking. The first two, while problematic for financial institutions, are nonetheless legal. Credit shopping is where borrowers apply for multiple loans to get the best interest rate. Credit stacking is where legitimate buyers apply for credit without realistically having the means to repay. The third type is fraud stacking, in which fraudsters apply for multiple loans with no intention of paying them back.
What Should Financial Institutions Know About Loan Stacking?
The growing availability of instant credit approval from financial institutions has allowed consumers and fraudsters alike numerous opportunities for loan stacking. Financial institutions are losing billions of dollars every year because of loan stacking by fraudsters and legitimate borrowers. Large, organized crime rings often orchestrate loan stacking schemes that aim for huge payouts from banks.
Fraudsters use sophisticated, involved strategies like identity theft and bust-out fraud to achieve maximum profit from loan stacking. For example, a fraud ring might create identities using stolen social security numbers and personal information obtained from phishing schemes. The fraud ring would apply for hundreds of loans distributed among multiple banks using the stolen identities. Once the loans are approved, the fraudsters gradually incubate each account- emulate legitimate user behavior, make the payments on time, and then suddenly “bust out” maxing out all of the accounts. The fraudsters disappear, and the lenders incur significant losses due to the defaults.
- Five individuals were recently arrested for allegedly attempting to steal more than one million dollars from five major credit unions. The fraud ring spent a year gradually filing more than one hundred loan requests electronically using stolen names and social security numbers. The fraud ring managed to steal more than $200,000 with this fraud stacking scheme.
Financial institutions need a solution that detects fraudulent loan and credit card applications before they reach the collections stage.
DataVisor Detects Loan Stacking
Application-level detection is critical for achieving genuinely proactive fraud management. Whereas most legacy systems still in use today operate solely at the transaction level—and are inherently reactive by nature—advanced, AI-powered solutions such as DataVisor’s dCube incorporate application-level analysis as well. This enables systems to flag suspicious activity before attacks launch and damage is caused. In the case of loan stacking, a reactive, transaction-level approach cannot identify fraud or instigate action until after malicious activity takes place. dCube, on the other hand, can correlate patterns and surface cross-account links that indicate coordinated application activity while an attack is still being planned, or early enough in the process that no damage is caused. This is particularly important for instances such as the attempted credit union theft, in which fraudulent accounts incubated for extensive periods of time before being put to use. Coordinated management of incubating malicious accounts can only be detected by solutions such as dCube; solutions that make holistic analysis and contextual detection possible, and which leverage the power of unsupervised machine learning to flag suspicious accounts early enough to prevent downstream damage.
Additional References
Solution: Financial Services
Solution: Application Fraud
Source: How fraudsters are gaming online lenders, American Banker
Source: Massive loan fraud ring busted: Hundreds of victims targeted, ABC, Inc., WLS-TV Chicago
Source: $8B In Bad Credit Card Debt Write-Offs Worry US Banks, PYMNTS.com
Source: Big Four U.S. Banks Hit With $12.5B In Credit Card Losses, PYMNTS.com
FAQs
Loan stacking is the practice of a borrower taking out multiple loans from different lenders within a short period, often without the other lenders' knowledge or approval. It can help address a legitimate need for quick funding or perpetrate a scam that brings quick funding with no intent of repayment.
Is loan stacking illegal? ›
It is not illegal to “stack” loans, but financial institutions lose billions of dollars every year to the process because many loan stackers commit application fraud – intentionally default on the loans they take out. There are three types of loan stacking: credit shopping, credit stacking, and fraud stacking.
What does stacking mean in finance? ›
Stacking loans means taking out another loan on top of an existing one, which can lead to a tangled web of debt that's difficult to navigate. Before you consider loan stacking, think about the impact it will have on your ability to pay back your current loans.
Can you stack personal loans? ›
Borrowers can have more than one personal loan, but how many loans and how much you can borrow depends on a lender's requirements and whether they'll approve a second or third loan. Managing multiple personal loans can also strain your budget, so it's worth considering alternatives before turning to another loan.
What is the stacking technique? ›
In subject area: Computer Science. A stacking approach in computer science refers to the technique of integrating the outputs of multiple base models using a meta-learning model to make final predictions.
Does debt stacking work? ›
Once the targeted account's balance is zero, you target the next one. Repeat the process until you are debt free. Debt stacking works, but only if you stop accumulating debt. Once completed, you will be debt-free and looking at a solid financial future.
Is loan stacking bad? ›
The risks of loan stacking: For lenders and borrowers
From a borrower's perspective, this means stacking business loans may breach your existing loan contract and you may incur a penalty fee or other serious consequences. Another risk for borrowers, the increased likelihood of being unable to repay the loans.
Can you have 2 possible loans at once? ›
Yes. Many banks and lenders will allow you to take out more than one loan, but they typically have limits. These are a few lenders that cap the number of loans or amount of money you can borrow. Be sure to check the fine print or ask a lender directly if they aren't on this list and you want to know their limits.
Are banks allowed to loan out more money than they actually have? ›
However, banks actually rely on a fractional reserve banking system whereby banks can lend more than the number of actual deposits on hand. This leads to a money multiplier effect. If, for example, the amount of reserves held by a bank is 10%, then loans can multiply money by up to 10x.
What is an example of stacking? ›
She stacked the plates in the cupboard. He stacked the books on the table. The other players accused him of stacking the deck.
Stacking is a technology that connects multiple switches through stack cables to form a logical switch for data forwarding. As a widely-used horizontal virtualization technology, it can improve reliability, increase the number of ports, increase bandwidth, and simplify networking.
What is stacking strategy? ›
Stacking is a strategy used in pickleball when players on a team are not in traditional positioning and are instead rearranged in order to keep one player on a particular side of the court.
Is it illegal to pay off a loan with another loan? ›
While you can often use one loan to pay off another, be sure to read the fine print of your contract first and be wise about your spending habits.
Can you get a loan on top of another loan? ›
A personal loan can be a useful financial tool to help you achieve your financial goals. While it's possible to have more than one type of loan at the same time, there are certain considerations that need to be factored in. Just because you qualify for another loan doesn't mean you should apply for it.
How many personal loans are too many? ›
There's no limit to the number of personal loans you're allowed to have. However, the amount of debt you can take on is limited to how much a lender is willing to let you borrow.
What is the stack method of debt repayment? ›
This can also be referred to as the“stacking method” or the “debt ladder.” To be clear, when using this method, you still make the minimum monthly payments on all of your debts, but you put your extra money toward the debt with the highest APR (a number that represents your interest rate and fees).
What is a lending stack? ›
The lending technology stack is the ecosystem of tools and services that enable today's fintech companies to handle everything from originations to servicing quickly and reliably—without having to bring on the teams of finance and technology experts that developing these functions traditionally required.
What is stackable in finance? ›
A Financial Stack is, therefore, a mix of tools and services that can be used together to achieve financial outcomes whether for a business or for personal finance. Previous generations had no need of a Financial Stack. Their financial services were sourced from the local bank more or less.
