Everyone is concerned with Synthetic Identity Fraud.  Everywhere you look, a new article or new study points out the growth in this type insidious type of fraud.

But surprisingly, Synthetic Identity Fraud continues to climb each year with companies like Accenture claiming that up to 20% of banks bad debt losses could be attributable to Synthetic Identity creation.

So why does this happen?  Usually the industry is fast to respond and squash issues like this. Particularly when it should be relatively easy to spot these fabricated identities.

I believe there are 4 reasons why Synthetic Identity continues to plague the industry and why we can expect it to continue to rise.

#1 – Some Synthetic Identity Pays and Some Doesn’t And That Creates A Conundrum

If Synthetic Identity fraud was similar to traditional True Name Fraud where the applicant has no intention of repaying, banks and lenders would target the problem more aggressively.

The problem with Synthetic Identity is that it is not.  In fact, many borrowers that use Synthetic Identities are trying to build or rebuild their credit and have every intention to repay.  And they often do.  And they are often profitable.

Some examples of potentially high performance segments include:

• Recent immigrants using Social Security Numbers not issued to them to establish their credit.
• Recent immigrants using falsified ITIN’s not issued to them to establish credit.
• Consumers that legitimately want to re-establish credit with a good payment history and use a false social security number.

But these high performing segments are causing a big problem for the industry.  Some lenders and banks simply don’t want to turn away the profitable segments so they choose to defer the problem to some point in the future.

The inability to distinguish between “good” and “bad” synthetic identities has put the financial services industry in a conundrum.

#2 – Most Victims Are Kids That Are Not in the Credit Spectrum Yet

The voice of Synthetic Identity victims is often not heard.  It is no secret the Social Security Numbers issued after 2011 are the prime targets for Synthetic Identity fraudsters.

Fraudsters know that children are not monitoring their credit and they likely won’t apply for credit for many more years.  During that time they can perpetrate their scheme and then move to the next victim.

The lack of a victim’s voice means that lenders are not notified when a synthetic identity occurs so they often assume a defaulted loan was due to a deadbeat borrower and not a fraudster.

#3 – Credit Repair Scammers Convince Consumers It’s Ok.

Credit scammers and phony credit repair companies are sprouting like weeds on Youtube and other Social Networks.

Their story is always the same.  It goes like this;

• “CPN’s are totally legit!”
• “Celebrities all use CPN’s to protect their identity”
• “I can get you a CPN because I am an attorney – Give me $200”
• “I can also get you some authorized tradelines – Give me $700”
• “In 45 days you will have a 750 FICO score”

100% of the time they are doing nothing but leading the consumer into a Synthetic Identity.  These credit repair scammers are one of the primary reasons Synthetic Identity fraud continues to rise.

How to Squash the Problem

The problem of Synthetic Identity could be resolved relatively easily.   I think some simple steps could go a long way.

1. Treat Synthetic Identity like true name identity fraud – don’t tolerate it.
2. Treat Synthetic Identity as a KYC (Know Your Customer) issue – verify everything
3. Verify directly with the Social Security Administration when possible.  They are introducing new legislation to validate SSN’s electronically which could go along way.
4. Turn on Credit Monitoring for Your Kids – Kids are more likely to be victimized

Thanks for reading.  Let’s solve this problem together!