Taking out multiple loans to get more funding than would be approved for any one loan is something that both real consumers do, and fraudsters do when trying to get as much as they can out of a stolen identity. The challenge for online lenders is not just recognizing loan stacking, but recognizing which type of applicant it is. Recent data from a credit bureau shows that higher credit score consumers have higher charge-off rates with loan stacking, likely resulting from the fact that these are the identities fraudsters target to steal and monetize.

With cases of identity theft or the use of “clean” identities, it is difficult to distinguish third party fraud from legitimate consumers. Organizations can track loan or application velocity, but typically can’t see the intent of the applicant, and not all loan stacking is bad. According to data from credit bureau TransUnion comparing consumer loans rated prime, loans that were stacked with others were 3.2 percent more likely to end up in default compared to non-stacked loans. It is expected that the default rate would be higher, as consumers who are loan stacking may over extend, but the default rate isn’t significantly higher compared to single or non-stacked loans.

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