Synthetic Identity Fraud: How to Detect, Risks and Prevention

Synthetic identity fraud occurs when a scammer combines some real identity aspects, like a Social Security Number that was obtained illegally but is still valid, with false or inconsistent Personal Identifying Information ("PII"), like a name and address, in order to open fictitious accounts and make fictitious purchases.

Above all, a genuine person cannot be held responsible for the fraud since the PII used in synthetic identity fraud is false, unlike if the fraud had been committed against a real person.

Synthetic identity fraudsters construct a new, false identity and apply for a credit line using a combination of true and false data. After working hard to build their credit, these thieves subsequently cash in big years later. 

The steps which scammers use to execute synthetic identity theft usually involve three steps.

1. First Step

Firstly, the fraudster's initial request to a credit provider is denied, but creating a file in the database allows them to keep attempting. When someone requests credit for the first time, the organisation will contact a credit agency and request the pertinent credit file. The bureau's response will be that there is no history because a false identity was created. The bureau does this by making a new credit file for the false person.

This gives the fraudster a better chance of being successful when they submit additional applications to financial institutions until they are ultimately accepted for a line of credit.

2. Second Step

A fraudster then works tirelessly to build good credit by making tiny purchases and promptly repaying them. Fraudsters can also "piggyback" on another person's credit line (someone in good standing) by paying them to add their names as authorised users (even if they don't get access to the other person's credit card details).

Additionally, this process can take several months to establish credit, which is one of the reasons it can be so challenging to detect. The phoney profile of the fraudster appears to the financial institution to be that of a typical person with employment, a salary, and a residence.

Some scammers also make great efforts to look "regular," even setting up accounts on social media or utilising post office boxes as addresses.

3. Third Step

Eventually, and often years later, the fraudster "busts out" by using up all of the meticulously built credit lines, giving up the identity, and leaving the organisations in the dark. They then go through the process again while masquerading as someone else.

Also, a rotating schedule of paydays is offered by some fraudsters who manage numerous false identities using various actual SSNs; however, this simply makes the issue worse and has a negative compounding effect on financial institutions.

When it comes to detecting synthetic id fraud, there is no quick fix. You'll require a multi-faceted strategy that ideally combines a number of technologies, such as reliable device fingerprinting, data enrichment, and digital footprint analysis. Nevertheless, here are the 3 tips for banks for synthetic fraud detection –

Tip 1: Check Data Horizontally and Vertically

At first sight, a loan application may appear to be genuine. However, focusing just on the facts of the application as it is presented to you is a horizontal view. It pays to examine additional data sources in order to gain a different, vertical perspective of the candidate.

For instance, the applicant's name may have been used in another account, or the provided phone number may be connected to someone who resides outside the country.

Tip 2: Re-think the Burden of Proof

Fraudsters primarily rely on banks to streamline the application and onboarding processes. So, it might be a good time to consider making it harder for applicants to submit identification and income documentation by introducing a tolerable amount of friction into the application process.

For instance, banks can employ step-up levels and friction layers to make it difficult for fraudsters to complete more lucrative transactions while maintaining a smooth and frictionless experience for the bulk of their dependable clients' transactions.

Tip 3: Look For Anomalies

Keep a watchful lookout for behavioural changes that don't make sense. For instance, there is nothing odd about a person from a particular zip code who has decent credit requesting a loan. 

However, if the number of applicants from the same location suddenly increased from a few hundred to several thousand over the course of the previous year, that's a clue that something is off. 

Moreover, if the data is extensively examined, it may be possible to tell whether one electronic device or several applications with different names are coming from the same place. By comparing activity to typical default rates, control reporting enables banks to keep an eye on their application rates to see whether they are under attack.

Synthetic identity theft or SIF is significantly more difficult to track down than standard identity theft because thieves fabricate a composite identity rather than stealing an actual one. This brings up a few issues, which are –

• With SIF, there isn't any undeniable proof of fraud. This makes it challenging to identify a fraud issue and even more challenging to determine whether new protections are working.
• When compared with SIF, it is simpler to identify traditional identity theft. Financial institutions can notify victims of identity theft whenever there is any odd activity on their account, including a login from an unknown IP address.

Fraudsters can, however, use false identities to maintain accounts for weeks, months, or even years, growing their credit score and gaining access to larger and larger lines of credit, only to eventually use up all available credit and vanish into thin air.

Children are the most likely synthetic identity theft sufferers because it may take years before the issue is noticed. This primarily happens due to the lack of credit reports for youngsters. The creditor will check the three credit reporting bureaus' databases when a person asks for a credit card or other type of credit to assess creditworthiness. As with SIF, a new file is generated if none of the existing ones is discovered.

Although protecting yourself from SIF is tough, but you can take personal action to avoid fake identity fraud on your own. A few of the following suggestions are –

1. Lock Up Your Credit

You can contact the major bureaus to freeze your credit and prevent anyone from accessing your credit files if you believe that you are a victim of ID fraud. That means that while you handle the problem, no new fraudulent accounts may be created.

2. Pay Attention to Your Credit

To ensure that no fraudulent purchases appear on your credit report, you should regularly monitor the major credit agencies.

3. If Not Required, Avoid Disclosing Your SSN

If someone reaches you and requests your SSN, never provide it. However, if you get in touch with a financial institution, they might only ask you to confirm the last four digits. Nevertheless, as long as you initiated the communication and arrived at a trustworthy website, that is acceptable.

4. Think Carefully Before Posting Anything To Social Media

Don't share too much on social media. Also, never provide anything that could be used to authenticate your identity, such as your residence or the model number of your first car, etc.

5. Sign Up for Identity Protection Services

Lastly, identity protection agencies will keep an eye out for any indications of forgery on your credit report for a cost.

If you suspect being a victim of synthetic id theft, there are only a handful of things that you can do. Most importantly, this process might also depend on the severity of your situation. 

Nevertheless, the steps to remember are –

1. Evaluate the Situation

Identity theft comes in a variety of forms, so it is essential to detect what effects did it have on you? If you are a sufferer, your situation might include a variety of fraud kinds listed below: credit, medical, banking, employment, taxes, government benefits, and criminal.

2. Report to National Credit Reporting Agency (CRA)

Notifying any of the 3 CRAs lowers the possibility of accounts being created in your identity without your consent. You can call Experian at (888) 397-3742, Equifax at (888) 766-0008, or TransUnion at (800) 680-7289 to place the alert.

The alert will be sent to the other two agencies for you if you place it with one agency, and the entitlement to a free credit report from each credit reporting organisation is also guaranteed by a fraud alert.

3. Examine Your Financial Records

Close any accounts that were created without your consent, as well as any accounts you already have that have experienced unlawful activity.

4. Check for Viruses On Your Computer

A computer infected with malware could enable hackers to collect confidential data you might be entering to handle online transactions, such as a credit card, bank, and other sensitive identity information. So, always run your anti-virus programme to check for any viruses that need to be eliminated if you think your computer is contaminated.

5. Protect Your Identity Documents

You should anticipate having to fill out, submit, and prove your identity using an affidavit. The ID Theft Affidavit from the Federal Trade Commission is commonly accepted.

6. Submit a Grievance to the Federal Trade Commission (FTC)

Tell the FTC about your circumstance so that they can collect data about it for prospective use by law enforcement nationwide. You can also submit your report online and print a copy to present to the police when you submit it.

7. Report to the Police

Only as a formality, the police may take the report and choose not to investigate further. This step is still beneficial to you, as you will require documentation that you reported the incident to the police. Furthermore, you can arrange the necessary facts more effectively if you prepare the FTC ID Theft Complaint beforehand.

8. Keep Track of Everything You Do

Keep track of the actions you take to resolve the issue. Include the phone numbers you called, the individuals you spoke to, the dates of your conversations, faxes, and emails. Keep a copy of all reports, affidavits, letters, etc.

9. Purchase Credit Reports For Evaluation

The CRAs will provide instructions on how to get a free report in confirmation letters if you have placed a fraud alert. Use the Annual Credit Report Request Service to get a free copy of each CRA's credit report if you decide not to file a fraud alert. As per federal law, one free credit report from every CRA must be made accessible once every 1 year.

In this regard, you can either call (877) 322-8228 or go online to request your credit report.

10. Keep an Eye On the Activity

Lastly, you must demonstrate that you are the victim and that the person who is engaging in the questioned suspicious conduct is not you by taking appropriate measures.

Although it can be challenging to determine whether some of your identity has been stolen, a sudden reduction in your credit score or getting turned down for credit despite having a solid credit history are warning signs. 

Aite Group's latest analysis also revealed that fake ID fraud has cost American banks $ 1.8 billion in 2020 and is projected to cost banks $ 2.4 billion by 2023. So, to be safe against synthetic identity fraud, limit exposure by never revealing a child's or a personal SSN unless it is absolutely necessary.