Synthetic Identity Fraud Losses Are $6 Billion Annually

Synthetic identity fraud is large. The Auriemma Consulting Group completed analysis which suggests that losses due to synthetic identity fraud topped $6 billion dollars last year.

The study found that Synthetic identity theft, a form of application fraud in which criminals use fake personas to abuse credit, is responsible for 5% of charged-off accounts and up to 20% of credit losses – or $6 billion last year alone – according to the firm’s analysis. The total is higher when store credit cards are considered, along with other products such as auto loans.

“Commonalities between customers in financial hardship and synthetic identities make distinguishing between the two loss classifications extremely difficult,” said Ira Goldman, Director of ACG’s Synthetic Identity Fraud Working Group and Credit Operations Roundtable. “But it’s clear that a significant portion of accounts in collections exhibit synthetic characteristics.”

Synthetic Identity Fraud May Be Behind Rising Delinquency Rates

ACG contends that the rapid rise in synthetic identity fraud may be one of the main drivers to increased delinquency rates on credit card portfolios.  Credit Card delinquencies were up 15% the first quarter of 2017 in spite of improving credit scores and a very good job market.

By all indications, credit card delinquencies should be dropping not rising.  ACG believes that synthetic identities are so hard to detect by the fraud groups that they end up going delinquent and getting categorized as a credit risk default.    Since there are no victims with synthetic identity fraud, no one ever calls to report to the bank that the account was a result of a stolen identity.

The average loss per case of Synthetic Identity Fraud is $15,000 which is exponentially higher than the typical chargeoff.

Auriemma Consulting Group Recommends Collaboration

To stem the rising tide of synthetic identity theft fraud losses ACG recommends collaboration between various industry groups:  The Social Security Administration, The Credit Bureaus, Vendor Solutions, Banks, Lenders, Law Enforcement and regulatory agencies.

In particular, ACG calls out the Social Security Administration which currently bars banks and lenders from cross checking social security numbers against the consumer’s records.

Credit Reporting Agencies Compound the Problem

Since credit bureaus are forced to create new records anytime a new credit inquiry is made even if a social security number appears on other consumers records it exacerbates the problem.

Credit Bureaus probably have records for hundreds of thousands or perhaps millions of fake synthetic identities.  Those synthetic identities are often carried for years while the fraudsters gradually add more and more tradelines in good standing.

When they bust-out, they can take banks for millions.

 

 

Frank McKenna is the Chief Fraud Strategist for PointPredictive and a Fraud Consultant based in San Diego California