‘Liar loans’ back in spotlight; how can brokers protect themselves?

While the majority of respondents were referring to having lied about their financial situation to friends, family, partners and employers – around 10 per cent of these respondents said they had done so on a financial application.

Finder also found that the younger generations were more likely to lie. Gen Z were found to be more likely than any other generation to admit to salary deception (15 per cent), followed by Gen Y (11 per cent) and Gen X (9 per cent).

This echoed findings from a survey from global analytics software company FICO, which released new research revealing a concerning shift in Australians’ attitudes towards first-party financial fraud – particularly among younger generations.

The survey – based on 1,004 Australian adults and 1,000 New Zealand adults and concluding in August 2024 – revealed that although the majority (65 per cent) opposed inflating income on financial applications, younger cohorts took a more lenient view.

For example, more than half of Gen Z respondents (53 per cent) saw it as either normal or acceptable in some situations, compared to just 12 per cent of those aged 65 and over.

This trend extended to mortgage applications, with 52 per cent of Gen Z (those born in the late 1990s and early 2000s) believing it was acceptable to deliberately misrepresent income in certain cases – far higher than the 10 per cent of seniors who shared that view.

Misrepresentation tactics included inflating self-employment earnings, overstating bonuses, omitting debts, or misrepresenting personal circumstances.

Both Finder and FICO noted that younger borrowers may be more prone to lying due to the cost-of-living pressures, as well as perceived societal pressures, personal insecurities, or strategic motives.

Graham Cooke, head of consumer research at Finder, said: “Individuals might falsify income on financial applications to secure loans, credit cards, or housing they otherwise wouldn’t qualify for.

“While these actions might seem insignificant in some contexts, they carry substantial risks ... It can result in more than just a denied loan.

“Falsifying information can severely damage [their] credit, hindering future borrowing, and potentially lead to legal prosecution.”

Corey Smith, senior consultant for decisioning, risk and analytics in Australia for FICO, commented that some consumers might not realise that the misrepresentation of information could equate to fraud.

He said: “Application fraud erodes trust in the financial ecosystem. To combat ‘liar loans’ banks must improve their ability to detect inaccuracies – protecting themselves from bad debt while also preventing customers from committing fraud.

“This can be achieved by leveraging access to third-party data, enabling real-time outreach for customer verifications, and implementing sophisticated decisioning structures to strengthen detection and prevention."

He added: "Brokers can play a role in identifying potential issues in loan applications by looking for discrepancies between stated income and actual financial records, unusually high debt-to-income ratios, and inconsistencies in supporting documents. Cross-referencing credit bureau data, tax returns, and transactional records can help uncover red flags that may warrant further scrutiny," highlighting that FICO offers a range of solutions to assist lenders in detecting inconsistencies and address risks early in the process.

What can brokers do?

Legally, consumers must fully and honestly disclose information during loan applications, while lenders are responsible for verifying financial details and ensuring loan affordability.

However, with more than 76 per cent of home loans now being written by the broker channel, brokers need to be increasingly vigilant about verifying the veracity of information given to them for loan applications.

Under responsible lending laws, brokers are required to make reasonable inquiries to verify income, but they must also take steps to protect themselves from fraud. Failing to meet these requirements can have serious consequences; brokers risk losing accreditation or, in more severe cases, facing legal repercussions if they are found to be at fault for a fraudulent application.

One of the key safeguards for brokers is conducting reasonable inquiries to verify income in line with responsible lending rules.

Most aggregators require brokers to use trusted tools and technology to pull financial information directly from the source. This includes credit checks via Equifax Access Seeker, financial data from apps like Investment Link’s CashDeck or illion’s BankStatements, and open banking tools such as NextGen’s Financial Passport.

Speaking to The Adviser last month, NextGen’s chief customer officer Tony Carn said open banking was helping reduce instances of fraud.

He said: “When an application is provided to a lender, they have the option to say, ‘Well, the information you’ve provided me, tell me that it originated in open banking’. The provenance of that is accurate. It’s also tamper-proof because it’s provided in an ecosystem where it cannot be corrupted.”

“The second thing is about the currency of that data. When an application is submitted to a lender, that [data] can be current as at the time of submission. If you’re using it to verify income [for example], you’re not looking at a payslip which might be outside of your credit policy. It’s all real-time data, as at the time of the application being submitted.”

Ultimately, the technology is moving towards cleaner transactions with minimal paperwork and less rework, Carn said.

“This is an enormous cost-saving opportunity to empower true straight through processing when [lenders] have a loan application because of the verification of data, whether it’s assets, liabilities, income, interest rates, expiry dates. All of that information is verified as factual, and doesn’t need to be sourced through different documents to make a risk assessment. It is a real game changer,” he said.

For brokers, providing lenders with a clear, verifiable trail of income verification (and undertaking their own due diligence to ensure a clear chain of custody when relying on information from accountants or third-party referrers) is particularly important if, and when, a lender identifies that a loan application contains misrepresentations.

Aggregators will often audit brokers to ensure compliance and provide ongoing training to keep them up to date on the evolving tactics used by fraudsters.

Aggregation group Connective held a webinar for brokers last year on identifying fraudulent documents, noting that collecting a document alone is not sufficient; brokers must verify the information. This could include:

• Obtaining bank statements to verify salary credits (typically a mandatory requirement for those under a credit representative licence).

• Obtaining a copy of the employment letter or employment contract.

• Completing online searches to check the online presence of a company.

• If the document is from an accountant, contacting the source of the document to verify the information.

Failure to ask additional questions or collect further supporting documents when red flags are present (such as typos or errors in documents, incomplete documentation, ABN details not matching stated employers, and ensuring super fund details are present within payslips) could be seen as a gap in a broker’s verification process.

The group outlined that issues may arise if a broker is found to have insufficiently escalated inquiries on information provided to them at face value.

Have you experienced clients lying about their income or financial position in applications? How do you mitigate this? Let us know in the comments below!

[Related: CDR rule change to shield brokers from fraud: Biza]