small business loan servicing solutions


The defi Team defi INSIGHT, Fraud

loan stacking

Loan applications are often sent to multiple lenders simultaneously. The action is called loan stacking, and it can help address a legitimate need for quick funding, or to perpetrate a scam that brings quick funding with no intent of complete repayment. Online lenders that focus on quick decisioning with limited verification of applicant identity or financial credentials for short-term loans face increased risk of loan stacking.

Legitimate Loan Stacking

Loan stacking is not illegal, though many lenders have explicit policies against it. Not all stacked loans are fraudulent. When properly undertaken, they can be a financial lifeline for the borrower. After receiving funding for an initial loan, a second loan (with a higher, risk-adjusted interest rate) from a different lender aware of the initial loan can provide the funds to bridge the borrower’s financial gap. Disclosure is key to the legitimacy of the loan. 

Fraudulent Loan Stacking

TransUnion’s analysis of the problem indicates that stacked loans are four times more likely to be fraudulent compared with single loans. Fraudsters know how to profit from loan stacking. False identity is the key to successful fraud. Stolen personal or account information and synthetic identities provide endless variations of false identities that appear to be legitimate without more detailed analysis or verification. Fraud rings have sophisticated means of creating false identities, using a different one for each application simultaneously submitted to unsuspecting lenders. When a stacked loan defaults, false identities make it difficult to track down the perpetrator. 


Fraudsters also know that it can take up to 30 days for credit inquiries and new accounts to appear on credit reports, thereby making it difficult for lenders to recognize loan stacking and easy for a fraudster to obtain two or more loans with similar interest rates and payment terms. 


Even when the lender is able to track down the person whose stacked loan has defaulted, the legal proceedings for equitable recovery among multiple lenders can be time-consuming, with no guarantee of satisfactory closure.

Reduce the Risk of Loan Stacking

Given the ease of simultaneously submitting loan applications to multiple lenders for the purpose of fraud, what are the best techniques to identify loan stacking and prevent it? Savvy lenders are enhancing their underwriting processes with lending technology to help determine whether applicants are legitimate and can pay off what they’ve borrowed. 


  • Fraud analysis can identify subtle or overt irregularities in the information provided in the application by comparing identities, IP addresses, or known locations used by known fraud rings to a database of borrower data to alert lenders to applications highly suspect of fraudulent applications.
  • Cloud-based identity analysis and verification services are used to flag applications that have a high probability of using false information to perpetrate fraud. These services identify synthetic identities and misrepresented addresses, income, or employment used to present a persona whose attributes belie the actual individual and financial position. 
  • In addition to checking credit scores, alternative credit data sources (utility payment history, rental records, address history, etc.) can provide a more detailed and accurate assessment of an individual’s financial position to help lenders better assess risk and price deals accordingly. Discrepancies between alternative data and information provided on the loan application alert lenders to the need for in-depth vetting of the applicant’s credentials.

There’s no single solution to prevent the risk of financial loss resulting from loan stacking, but smart lenders know they need the right combination of technologies that give them a decided advantage over loan stacking borrowers who have no intent to repay. Fraud analytics, identity verification, and accurate assessment of an applicant’s financial strength are three capabilities that can help lenders reduce the risk of loan stacking.



Getting Started

defi SOLUTIONS’ loan origination experts use the latest lending technologies and solutions to mitigate loan stacking risk. Take the first step toward identifying and reducing risk by contacting our team today or registering for a demo of defi LOS.


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