By Tina Giorgio
It’s the fastest growing type of financial crime in the U.S., costing U.S. lenders $6 billion in 2016, and it’s not what you might think. Whereas in years past the industry might have been battling insurance fraud or identify theft, today one of the biggest threats to the financial services industry—and community banks—is synthetic identify fraud.
Synthetic identity fraud is a different take on traditional identity theft. Perpetrators use a mix of fictitious or authentic personally identifiable information (PII), such as names and Social Security Numbers (SSNs), to create new identities, establish a credit history, and then max out or “bust out” credit lines and then disappear with the funds only to start a another synthetic identity.
But because perpetrators often use real PII and exhibit normal credit-building patterns and behavior, synthetic identify fraud can be hard to detect and mitigate. Studies have found that fraud models built to predict traditional identity fraud did not flag 85 percent to 95 percent of potential synthetic identity fraud applicants. Last year, more than 1 million children were victims. That’s because their SSNs had never been used to establish credit.
Despite the difficulty in detection, there are some common characteristics that synthetic identities exhibit, according to the Federal Reserve's recently released Detecting Synthetic Identity Fraud in the U.S. Payment System. Synthetic identities often maintain:
Multiple authorized users on the same account — Perpetrators frequently add multiple synthetic identities to “good” accounts to support the validity of synthetics and help build their credit profile. Many times, the synthetic identity will “inherit” the credit history of the valid account holder.
Understanding the characteristics of synthetic identities is a great first step in helping to mitigate the effects of synthetic identify fraud. Community banks should consider other mitigation activities as well to minimize the threat this type of fraud poses. These activities could include:
Synthetic identify fraud might be one of the fastest-growing threats to our industry, but by recognizing the telltale characteristics and leveraging mitigation activities, community banks can get in front of it to minimize the impact.
Tina Giorgio is president and CEO of ICBA Bancard.