Synthetic Identity Fraud — Hurts Real People

Last Updated on by SCARS Editorial Team

Synthetic Identity FraudSynthetic identity fraud Synthetic identity theft, or synthetic identity fraud, occurs when a criminal creates an identity instead of stealing an existing one. The scam involves mixing real Social Security numbers, or fake numbers, with other pieces of information—names, addresses, and birthdates—to put together an entirely new identity, often using partially fake identity information. In contrast, the more familiar form of identity theft involves using the actual name, Social Security number, and other personal data of a single victim. — Hurts Real People

The New Battle In Financial FraudFraud In law, fraud is intentional deception to secure unfair or unlawful gain (money or other assets), or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compensation) or criminal law (e.g., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities), or it may cause no loss of money, property, or legal right but still be an element of another civil or criminal wrong. The purpose of fraud may be monetary gain or other benefits, for example by obtaining a passport, travel document, or driver's license, or mortgage fraud, where the perpetrator may attempt to qualify for a mortgage by way of false statements. A fraud can also be a hoax, which is a distinct concept that involves deliberate deception without the intention of gain or of materially damaging or depriving a victim.

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“Fake” Synthetic IdentitiesSynthetic identity Synthetic identity theft, or synthetic identity fraud, occurs when a criminal creates an identity instead of stealing an existing one. The scam involves mixing real Social Security numbers, or fake numbers, with other pieces of information—names, addresses, and birthdates—to put together an entirely new identity, often using partially fake identity information. In contrast, the more familiar form of identity theft involves using the actual name, Social Security number, and other personal data of a single victim. Hurt Real People

According to Sontiq:

Over the last few years, synthetic identity fraud has taken off.

Once considered a complex and expensive crime to commit, synthetic ID fraud cost U.S. banks $1.8 billion in 2020 and is on track to cost banks $2.4 billion by 2023. Meanwhile, the U.S. Federal Reserve Bank of Boston attributed 20% of financial institution (FI) credit losses to synthetic identity fraud as recently as 2016.

Mitigation has largely fallen on the financial institutions where the crime occurs. But there are very good reasons why consumers should play offense — and financial institutions should be their top supporters.

What Are Synthetic Identities?

Learn more here: Synthetic ID Fraud: Fighting an Invisible Enemy [Video][Updated]

Synthetic identities are identities that do not correspond in their entirety to any real person.

However, they may well contain pieces and parts of personal information that belong to real people. This is a large part of why consumers haven’t been actively engaged on the issue – if it is not a real identity, how can there be any real victims?   Unfortunately, as we’ll cover later, the consequences of these “fake” identities are very real.

According to SONIQ:

As any bank or credit union’s fraud team is quite aware, fraudsters are using synthetic identities to bypass processes meant to positively identify consumers. They are successful largely because institutions rarely verify identities with sources of record.  Meaning, instead of verifying a Social Security Number (SSN) with the Social Security Administration (SSA), they consult third-party data brokers. Those data brokers obtain information from other organizations that have collected it from the consumer (which was likely never verified with the source of record, either). While it is becoming easier to verify some of this directly by using relatively new services like the Electronic Consent Based Social Security Verification (eCBSV) service from the SSA, it is far from commonplace.

The Internet & Digitization Has Transformed The Banking Experience — And Fraud, Too

Ten years ago, synthetic identity fraud was time-consuming, risky, and rarely committed in person. Committing this type of crime in the real world meant a fraudsterFraudster A Scammer or Fraudster is someone that engages in deception to obtain money or achieve another objective. They are criminals that attempt to deceive a victim into sending more or performing some other activity that benefits the scammer. would need forged identity documentation. If that documentation didn’t pass muster, they could be arrested on the spot, or at the very least, need to restart the major effort of obtaining another forgery and building a new false identity.

It’s very different now that applying for financial products online has become the norm. Criminals can take personally identifiable information (PII) stolen in any number of data breaches and combine it with a fictitious name, a random address or date of birth, and other elements that they like. This can be replicated hundreds of times in a day for little time or money. It’s a far cry from just a few years past.

3 Major Synthetic IdentitySynthetic identity Synthetic identity theft, or synthetic identity fraud, occurs when a criminal creates an identity instead of stealing an existing one. The scam involves mixing real Social Security numbers, or fake numbers, with other pieces of information—names, addresses, and birthdates—to put together an entirely new identity, often using partially fake identity information. In contrast, the more familiar form of identity theft involves using the actual name, Social Security number, and other personal data of a single victim. Threats To Families And Individuals

Synthetic identity fraud is rising at an alarming speed, and it’s causing actual damage to individuals and families:

  • It puts kids’ financial futures at risk. The SSNs of children are among the most highly valued elements in many synthetic identities — preferred because a child’s credit report is almost always a blank slate.
  • Synthetic identities can adversely affect consumers’ credit. Criminals can make victims out of consumers by coopting elements of their PII to build a synthetic identity, such as their SSNs. As the fake identity is used to obtain new accounts, that activity can end up on the legitimate consumer’s credit report – especially if they have little to no past credit history. Having alternate personal information (name, address, employer, etc.) appended to a credit report can cause problems for the legitimate consumer when they attempt to obtain credit in the future. It presents a confusing and inaccurate picture of activity and risk level. Even worse, the negative credit activity will quickly manifest as fraudulently obtained accounts start to go unpaid. At this point, restoring one’s credit report and trying to untangle the confusing mix of identities presents a painstaking, time-consuming nightmare for most consumers.
  • Credit repair services might be making fraudsters out of customers. Finally, shady credit repair services are encouraging them to use a ‘Credit Privacy Number’ (CPN) in place of their SSN when applying for new accounts.  Even if their own credit history leaves something to be desired, consumers that use CPNs to obtain credit are committing fraud in the process (according to existing regulations!)

Vigilance Is The Most Important Way To Keep Synthetic Identity Fraud At Bay.

Financial institutions support this by offering access to credit reports and account activity alerts – but these measures raise red flags after fraud has already happened.

Some service providers say it is possible today to take a more proactive approach.

Financial institutions can be an important partner in proactively monitoring consumers’ sensitive PII, alerting them when it’s been compromised, and clearly identifying what mitigation steps should be taken. By making identity monitoring available to consumers and educating them on their role in stopping synthetic identity fraud, banks and credit unions are also reducing their own risks. Because when a fraudster uses a synthetic identity, it creates victims of financial institutions and consumers – and it is in the real interest of both to work together and stop it.

Resources:

  • Portions provided by SONIQ – a leader in the identity protection market

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By the SCARS™ Editorial Team
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