Credit fraud is a catch-all term for a range of criminal acts designed to make financial gain by exploiting lending processes. The 5 most common types of credit fraud are credit card fraud, identity theft, fake fee fraud, document forgery, and mortgage fraud.

To protect yourself from credit fraud, it is essential to guard personal information carefully, minimize dangerous situations when taking out a loan, and take out insurance if necessary. In practice, this includes protecting personal documents, using secure passwords, being skeptical of overly good credit offers, and taking out specific credit insurance.

Fraud is severely punished by Swiss law, with prison sentences of up to 5 years. Credit fraud can fall under various articles of law, mainly under the Consumer Credit Act and the Criminal Code.

What types of credit fraud exist?

There are many types of credit fraud, but the best-known and most widespread are the following 5 scams.

Credit card fraud
Identity theft
Fake fee fraud
Document forgery
Mortgage fraud

1. Credit card fraud

Credit card fraud is a form of credit fraud in which fraudsters use stolen credit card information to purchase goods or services. Techniques such as skimming, where credit card data is intercepted at ATMs or payment terminals, or phishing e-mails to obtain card data, are unfortunately widespread, even in Switzerland. The losses for cardholders can be considerable, although many banks and credit card companies now offer protective measures such as fraud detection systems and liability limits.

2. Identity theft

Identity theft is a popular scam among credit fraudsters. In identity theft, criminals use stolen personal data such as name, address, date of birth, or social security number to take out loans in someone else’s name. This information is usually stolen through phishing attacks, the hacking of databases, or the theft of physical documents. As lenders are obliged to verify identity before granting credit, credit fraud through identity theft is rare in Switzerland. The consequences for the victims are serious: they are confronted with unjustified claims while their creditworthiness suffers. Identity theft is often only noticed when reminders or debt collection demands arrive.

3. Fake fee fraud

In fake fee fraud, borrowers are tricked into paying fees in advance, for example, for processing a loan that is never granted. Fraudsters lure borrowers with the promise of loans under difficult conditions but first demand payment of supposed fees. Such scams are particularly prevalent online, with victims often being desperate loan seekers. Reputable providers never ask for a fee in advance. Separate fees for brokering are actually illegal (Article 35, Federal Law on Consumer Credit).

4. Document forgery

Document forgery refers to creating or altering documents to use false information in credit applications. This includes forged pay stubs, falsified bank statements, or other official documents to artificially increase credit eligibility. Credit application fraud is the extreme form of this, as information is completely fabricated. Excessive income is lied about, or nonexistent collateral is provided. This type of loan fraud represents a considerable risk for lenders, as it leads to the approval of loans to unqualified and fraudulent applicants.

5. Mortgage fraud

Mortgage fraud in Switzerland can take several forms, including the overstatement of property values, the use of forged documents to obtain a mortgage, or fraudulent acts related to mortgage brokerage. These practices affect both borrowers and lenders; for example, when a borrower invests in a property whose value has been artificially inflated or when a bank grants a mortgage based on false information.

How do you protect yourself from credit fraud?

To protect yourself from credit fraud, you need to be careful when transmitting and monitoring your data. The most effective protection against credit fraudsters is to be sufficiently vigilant in the following areas.

Protecting personal data
Minimizing risks
Choosing trustworthy credit offers
Taking out insurance

1. Protecting personal data

Protecting your personal information is the first line of defense against credit fraud. If you share personal information online or over the phone, special care must be taken. The following measures help to ensure data protection.

Use secure passwords and change them regularly: Use a password manager to generate and store strong, unique passwords for each account. Keep important documents safe and destroy old documents properly.
Recognize phishing attacks: Be suspicious of emails or messages that ask for personal information. Check the sender’s address and look for spelling mistakes or grammatical errors. Call the official authorities if you are unsure who the message is from.
Protect data at ATMs and during online transactions: Make sure to cover your PIN entry and only use secure websites and encrypted WiFi connections for e-banking or online purchases.

2. Minimizing risks

To minimize the risk of credit fraud, you should apply preventive measures. It is difficult to avoid all credit risks, but the following practices should always be observed.

Be wary of credit offers: Be skeptical of loan offers that sound too good to be true, especially if upfront payments are required. Reputable lenders do not require any fees before a loan is approved.
Check bank statements: Regularly check your credit card statements for unauthorized transactions. If you suspect anything, contact the provider immediately.
Limit information sharing: Only give out personal information when necessary and, of course, only to trustworthy people and institutions.

3. Choosing trustworthy credit offers

Choosing suitable offers is important in several ways. The following 3 tips will help you avoid becoming a fraud victim and get good credit conditions.

Use a credit broker: Do not choose your lender yourself, but use the offers of credit brokers. You will find an application form for reputable loans on the Kredite Schweiz homepage, which is free of charge and without obligation.
Get a second opinion: Discuss the loan offer with someone from your private environment who knows about the topic. A second opinion provides more clarity.
Take your time: Take your time when making your decision and listen to your gut feeling. If you have the impression that something is not right, keep researching until all concerns have been refuted.

4. Taking out insurance

Insurance offers protection if the worst happens and you become a victim of fraud. In Switzerland, there are various insurance options for loans. Concerning credit fraud, the following 3 insurances are particularly relevant.

Fraud insurance for credit cards: Credit card providers offer insurance that takes effect in the event of fraud and protects the cardholder from financial losses. These are often included with the cards.
Identity protection insurance: These policies provide assistance in restoring your identity and reputation and cover costs incurred due to identity theft.
Legal insurance: Legal expenses insurance is helpful to cover the costs of legal action in the event of credit fraud.

How does the law punish credit fraud?

The law provides for severe penalties for credit fraud, as Switzerland takes the fight against financial fraud extremely seriously. Due to the diversity of possible offenses, credit fraud falls under many different articles of law, but mostly under the Federal Law on Consumer Credit and the Criminal Code. The legal prosecution and punishment of credit fraud in Switzerland are based on the circumstances of the case, including the type of fraud, the extent of the damage, and the actors involved.

The law distinguishes between felonies and misdemeanors, depending on the severity of the punishment with which the offense is punishable. Felonies are offenses that are punishable by imprisonment of more than 3 years. Misdemeanors are acts punishable by imprisonment for up to 3 years or fines. Intentional credit fraud is a felony punishable by up to 5 years in prison or a corresponding fine.

Criminal prosecution

The criminal penalties for credit fraud in Switzerland are mainly based on the Swiss Criminal Code (SCC). Various articles of the SCC apply depending on the type of fraud (not quoted word-for-word).

Fraud (Art. 146 SCC): Any person who, with the intention of unlawfully enriching himself or another, misleads or keeps someone in error utilizing false pretenses or suppression of facts and thereby causes damage to his or another’s pecuniary interests is liable to a custodial sentence or a monetary penalty.
Forgery of a document (Art. 251 SCC): Forging or altering documents to obtain an unlawful pecuniary advantage for oneself or another is covered by this article and is punishable by imprisonment or a fine.
Computer fraud (Art. 147 SCC): This article is relevant to credit fraud if it is implemented through unauthorized access to computer systems, for example, through phishing or hacking.

Civil law measures

Victims of credit fraud may take civil action to seek compensation and reparation. This includes filing a claim for damages against the fraudster to recover the financial losses. Civil action can also be carried out to invalidate a fraudulently obtained contract.

Administrative measures

Administrative measures against credit fraud are also taken. The Swiss Financial Market Supervisory Authority (FINMA) plays a central role in monitoring and regulating companies in the financial market. It initiates investigations into suspected credit fraud by financial institutions and imposes sanctions where necessary, including the withdrawal of business licenses.

What is credit fraud, and how can you protect against it?

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