Unauthorized Use of Third-Party Bank Accounts as Loan Collateral: Implications for Fraud Risk Management and Consumer Protection in Nigeria

Unauthorized use of third-party bank accounts as loan collateral represents an emerging but under-examined form of financial crime in developing banking systems. This study examines the unauthorized use of third-party bank accounts as loan collateral in Nigeria and its implications for fraud risk management and consumer protection. The research aims to identify the mechanisms through which unauthorized collateralization occurs, assess the adequacy of customer consent verification and internal control systems, evaluate the effectiveness of existing regulatory safeguards, and propose risk mitigation strategies. A descriptive research design was adopted using primary data collected from 200 respondents (120 bank staff and 80 customers) through structured questionnaires and interviews. Secondary data were obtained from regulatory documents, including the Central Bank of Nigeria (CBN) Consumer Protection Framework and BOFIA 2020. Data were analyzed using descriptive statistics and multiple regression analysis at a 5% significance level. Findings reveal that weak customer authentication significantly increases unauthorized collateralization risk by over 60%, (β = 0.61, p < 0.01), while ineffective internal controls also exert a positive and significant influence by nearly 50%. (β = 0.48, p < 0.05). Although BVN-based authentication reduces risk exposure by approximately 37%, (β = –0.37, p < 0.05), it remains insufficient in the absence of integrated monitoring and real-time customer notification mechanisms. The model explains 63% of the variation in unauthorized collateral use, confirming the systemic nature of the problem. The study concludes that unauthorized collateralization is primarily a process-driven institutional failure rather than an isolated criminal act. It recommends mandatory biometric consent verification, real-time customer notifications, strengthened internal audit controls, and targeted regulatory enforcement to enhance fraud prevention and restore consumer trust in Nigeria’s banking system.