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Scam Alert: A Look at Cell Phone Fraud & Credit Muling

Posted on: September 1st, 2016

While the drug trade is still one of the biggest problems in this country, many criminals are switching their alliance to something that is both less risky and just a profitable - cell phones. In 2014 alone, 2.1 million cell phones were stolen in the U.S. As nearly 10 percent of all cell phone owners are victims of theft, the major carriers are also being victimized by various frauds and a scheme called credit muling. While there is no single answer to stopping the theft and scams, several solutions have been implemented to put a dent in these growing numbers.

Cell Phone Theft

Cell phone usage is up worldwide, yet most countries don't have plans to make popular phones affordable like we do in the United States. While someone in the U.S. can walk into Sprint or Verizon and access an iPhone 6 for little upfront cash, a person in South America or Asia will pay upwards of $1,000 for that same phone. This makes cell phone theft and smuggling a profitable enterprise in the U.S., and many criminals are either snatching phones off the street, called "picking apples," or engaging in an illegal strategy called credit mulling.

The Credit Muling Scheme

Credit muling is a common scheme in which a middleman locates, mostly homeless and poor, individuals to obtain expensive cell phones on contract with major carriers. Those phones are then handed over for a fee, say $100, and the phones are shipped overseas to be sold for $1,000 or more. One such scheme perpetrated in California netted a couple close to $2.5 million in annual income and an eventual prison sentence.

Hijacked Mobile Accounts

Another growing cell phone fraud issue is that of hijacked wireless accounts. Cell phone users are suddenly discovering their accounts no longer working, only to find out that their wireless account has been hijacked by a thief. This form of identity theft involves a thief using fake identification to take over your wireless account. They can then purchase cell phones for resale and even use your services until they are turned off.

A "Kill Switch" is Only Partially Effective

State and local governments, with the cooperation of phone makers like Apple, have come up with one solution to phone trafficking. In several areas, phones now have a "kill switch" that permits owners to remotely deactivate the phone, making it inoperable, if it's been stolen. While this has cut down on some street theft, it does little to deter credit muling and hijacked accounts, which give thieves access to brand new phones.

Stopping Fraud Through ID Verification

Stopping fraud where it is most occurring, at the major service providers, is the best way to put a dent in these growing numbers. As most of this is accomplished through identity theft or false identification, giving service providers and cell phone retailers better tools to verify identification and spot false ID's is the best solution. While many phone carriers still rely heavily on photo ID, it's clear that not enough store employees are trained in spotting fakes or possible scam situations.

Cell phone scams have become big business. So much so that organized crime organizations have become involved in the game. If cell phone companies hope to combat this fraud, stronger ID verification systems will need to be adopted.