With synthetic ID fraud—a tactic by which fraudsters use a combination of fake and legitimate information to create new identities—on the rise, a new white paper from the Federal Reserve’s FedPayments Improvement initiative examines how to detect and prevent it. Using a synthetic identity, a fraudster can apply for credit, establishing a credit file at a credit bureau and “proof” the identity exists. The fraudster then applies repeatedly for credit until approved, then legitimizes the synthetic identity. Ultimately, the fraudster “busts out” and disappears without payment.
Because fraudsters will typically attempt to pass know-your-customer tests by making synthetic identities appear valid, financial institutions must have strong customer identification programs in place. The paper notes that the Social Security Administration is expected to roll out a new electronic service in 2020 that will allow institutions to electronically check an individual’s name, Social Security number and date of birth against a database, which could aid in the detection of synthetic ID fraud.
The paper noted that banks should also be on the lookout for the common characteristics of synthetic identities, which include—among other things—addresses near large international airports or shipping areas, SSNs issued after 2011, the use of secured credit lines to build credit and multiple applicants with the same address or phone number.