WASHINGTON–Synthetic identity payments fraud is a fast-growing but little-understood problem affecting everyone from individuals to financial institutions to government agencies to private industry, according to a new white paper (PDF) released by the Federal Reserve System.
The Federal Reserve noted a synthetic identity (PDF) is created by using a combination of real information such as a legitimate Social Security number with fictional information, which can include a made-up name, address or date of birth.
According to the Fed, synthetic identity fraud cost companies some $6 billion in in 2016.
Other key findings from the report include:
- Between 2017 and 2018, the volume of personally identifiable information exposed in data breaches increased by 126%
- 20% of credit losses were attributable to synthetic identity fraud in 2016
“Fraudsters increasingly use synthetic identities to commit payments fraud, which can escape detection by today's identity verification and credit-screening processes,” the white paper states. “Over time, fraudsters build up the creditworthiness of the synthetic identity, then "bust out" by purchasing high-value goods and services on credit and disappearing. Because the identity was not real to begin with, there is limited recourse in tracing the perpetrators and holding them responsible for their debts.”
The paper notes consumers whose Social Security numbers have been used for fraud face the time-consuming process of correcting their credit reports. Other consequences of synthetic identity fraud extend beyond payments fraud to include denial of disability benefits, rejection of tax returns, and inaccuracies in health records.
Attractive to Crime Rings
"Crime rings see attractive opportunities in synthetic identity payments fraud," said Ken Montgomery, Federal Reserve System payments security strategy leader and chief operating officer at the Federal Reserve Bank of Boston. "Law enforcement officials, financial institutions, and other organizations recognize it as a growing concern. But unfortunately, many consumers don't realize how it can hurt their access to credit or how to protect themselves," he said. "The white paper provides information on the current state of synthetic identity fraud, including the scope of the issue, causes, contributing factors, and its impact on the payments industry."
For more info: FedPaymentsImprovement.org