I seemed to find myself being asked more and more lately what is considered fraud when applying for a loan. It seems odd when people ask me this, as if something doesn’t feel right to you, or you have provided incorrect information, or not disclosed something on a loan application, technically it is fraud.
And fraud is one of those words that brings up horrible feelings and thoughts.
Unfortunately for some, little things they may do, or may not disclose, may get them a loan, or save them money on their insurance, life or car insurance, but in the end is a form of fraud, and can catch up to them in the end.
How many times have I been asked the question about inflating one’s income to get a loan….quite a few times.
The fact is this is somewhat fraudulent, but those that are self-employed and/or have various and different sources of income may slightly round-up that their income is each month.
It is the lender’s responsibility to verify this income, however many do not follow through with this, so it goes under the radar.
It is funny, but the only time I get asked this question or it becomes an issue is when someone cannot pay back a loan. Then this question gets asked and the whole over stated their income issue rears its ugly head.
Have You Ever Been Bankrupt?
The question on some loan and mortgage applications is, “have you ever been bankrupt?”.
This is a broad, very broad question.
The question is not asking have you ever been bankrupt in the UK, or is region specific, or even giving a time line, it is just have you ever been bankrupt.
So if you have been bankrupt, how do you answer? And how will they (being the lender) know?
Good questions, and questions of a moral issue.
You may have gone bankrupt 20 years ago, or maybe in a different country, should you disclose this.
After six (6) years everything is to drop off your UK credit history, UK lenders do not as a matter of course check your credit file in other countries, so how would they know if you had gone bankrupt.
The fact is, you could probably state no I have never been bankrupt, and the lender will never know. However, if they were to find out, that is a misrepresentation or statement on your part.
Funny, in an odd way, most of these misrepresentations we discuss here only come out if a loan is in default, or a claim is made on an insurance policy. So let’s discuss insurance fraud!
Not Disclosing a Health Condition
As mentioned, fraud is an ugly word, but many consider non-disclosure not being fraud. It is.
When applying for any type of health, life, or travel insurance, there are always medical questions to underwrite the application.
And some people may have a medical condition that is not questioned or asked about on the insurance application. A few years back asthma was one such condition.
Many people who applied for travel insurance or other health type insurance policies, either forgot to mention they had asthma, or didn’t think it was important.
It was and is important. It is a health condition, and especially if treated with inhalers or steroids.
So what happens if you fail to disclose this condition, or just forgot….read on.
Smoker or Non-Smoker?
Here is another box many decide to not tick smoker due to the fact, how will they find out???
Life and health insurance premiums are based on if you are a smoker or non-smoker, and in most instances you have to be off the ciggies for 12 months if not longer to be considered a non-smoker.
Oh, I’ll quit smoking after I get the insurance policy.
They’ll never know.
Once again, not disclosing a fact, and especially knowing you smoke and ticking the non-smoking box, isn’t really true is it?
Here is the possible Number One misrepresentation or fraudulent act committed…..using a different address for your car insurance.
Car insurers use post codes to base their rates for car insurance policies.
Some post codes have higher accident rates, or higher rates of car stolen or damaged.
I’ll use my parents address for my car insurance it’s cheaper.
I’ll use my friend’s address for my car insurance, I stay there 2 nights a week.
The fact is many car insurance policies ask where the car will be parked at night, most nights.
What address is on your drivers licence? If it does not match up with the address you live at, and the address on your insurance policy, that is bad. The DVLA doesn’t like this. It is your responsibility to update the DVLA if you move house. Insurers like your drivers licence address to match where you state you park your car.
Claim Denied!
So what happens if you fail to disclose something or out right lie and give false or in accurate information on a loan or insurance application??!
From an insurance standpoint, if you were to place a claim, that claim could be denied!
If your family were to place a claim for a life insurance policy and you failed to disclose you were a smoker, or had a per-existing heal condition, the premiums paid may be paid out, but not the death benefit.
The same for a travel insurance policy. You place a claim, failing to disclose a health condition, claim denied.
A common question asked on any travel insurance claim is, “was the claimant drinking alcohol at the time of the accident?”.
This gives the insurer a way to not pay the claim, contributory negligence. By drinking and possibly being drunk, they contributed to their own accident or injury.
Having an insurance claim denied can leave you out of pocket, especially if you have a car crash and someone is injured or places a claim against you personally.
Will I Go To Jail or Prison?
These acts of non-disclosure or misrepresenting on loan or insurance applications is usually not considered a crime that the lender or insurer is going to pursue through the courts.
These failings to disclose, or ticking the wrong box, usually are not noted or caught until a claim is submitted to the insurer, or a loan goes into default.
The underwriting process for insurance and loans is two-fold process, part one is upfront when you apply, and part two is when you place a claim or default.
Am I preaching and/or taking the High Ground here, possibly. But we need to be aware of this, what might seem minor things, that can change things….especially if there is an insurance claim, or you default on a loan.