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The Unintended Consequences of Fraud Protection on Consumers

David Smith by David Smith
April 6, 2025
The Unintended Consequences of Fraud Protection on Consumers
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The realities of cybercrime have forced financial institutions to go the extra mile with fraud protection. Yet no scheme for preventing fraud is without unintended consequences. And unfortunately, some of the negative consequences of modern frog protection are not being felt by scammers, they are being felt by consumers.

This isn’t to say that fraud protection strategies should be abandoned. In reality, abandoning them would make an already precarious situation even more serious. It is to say that consumers need to be prepared for delays, hassles, and other uncomfortable circumstances as the war between fraudsters and security experts continues.

Fraud Protection From the Financial Institution’s Perspective

Financial institutions have no choice but to adopt robust fraud protection strategies. One of the hottest strategies right now is darknet intelligence. It is the domain of experts like DarkOwl, a company that helps financial institutions identify, prevent, and mitigate online fraud.

DarkOwl software can identify:

  • Bank Drops – Bank drop incidents impact banks, payment processors, and retailers.
  • Account Takeovers – Account takeovers and fraudulent account creation have both increased in recent years.
  • Illicit Trading – Illicit credit and debit card trading has found a home on the darknet in an emerging carding industry.

All the problems DarkOwl has identified impact financial institutions directly. For example, credit card companies work extremely hard to protect their customers against fraud. In order to keep customers happy, they absorb the costs associated with fraudulent transactions. So every stolen credit card impacts on a credit card company’s bottom line.

From the Consumer’s Perspective

While financial institutions are employing strategies like darknet intelligence, consumers are taking advantage of various programs designed to protect them from fraud. Here in the U.S., a consumer might elect to pay for credit monitoring. Some invest in credit repair services as well.

In the UK, consumers can enroll in a fraud protection program that puts protective markers on their accounts. The markers are designed to alert users to attempts to use credit without authorization. They are similar to credit alerts here in the States.

Recently however, banks have been interpreting such markers as red flags. Because the markers could indicate some form of financial fraud, banks have been more likely to turn down legitimate credit requests to protect themselves. According to The Sun, thousands of consumers have been denied mortgages and insurance policies.

A Difficult Situation

Scenarios similar to those playing out in the UK right now create a difficult situation for both creditor and consumer. Creditors are not purposely trying to turn away legitimate business. On the other hand, they need to protect themselves against fraud.

Meanwhile, consumers also attempting to protect themselves by enrolling in fraud protection programs do not expect those programs to lead to credit denials. They could put an end to the credit denials by opting out of their fraud protection services, but then they feel like they would be left vulnerable again.

There is no easy solution. The fact of the matter is that online fraud continues abated. Bad actors keep stealing credit card numbers and banking information. They keep stealing identities, creating fake accounts, and using the good credit of unsuspecting victims to their own advantage.

Until we have a better system for conducting business online, fraud will continue. There is not much that financial institutions and consumers can do but make the best of the situation with the security tools we currently have at our disposal. It is a constant battle. Fortunately, the good guys come out on top more often than not. Yet that’s little consolation to consumers who often bear fraud protection’s unintended consequences.

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