TransUnion estimates that $355 million worth outstanding credit card balances in 2017 belonged to people who did not exist. That is only a fraction of $16.8 billion in total fraud losses, but it is significantly higher than it was several years ago.
Fake people getting a real line of credit? How does this happen? It has to do with synthetic identity fraud.
With synthetic identity fraud, criminals create fictitious personas and use them to apply for car loans, credit cards and personal loans. They craft these personas using Social Security numbers that have not been issued yet.
Getting approved for a line of credit requires a multi-step process. In most cases, the fraudsters will apply for a loan, expecting to get rejected. Once the rejection comes back, there is a credit file on the fake person’s credit report. This is what establishes the identity. The fraudsters then use the solidified identity to apply for loans and credit cards, and their approval chances increase because their credit appears to be active.
Last year, a study from ID Analytics showed the number of new Social Security numbers on credit applications had doubled over the last five years. This could be because the Social Security Administration now issues randomized Social Security numbers. It is much easier for fraudsters to create fake identities.
Another factor fueling the growth of synthetic identity fraud is the prevalence of automated credit approvals. Many applications are never viewed by an actual person. The financial institutions have systems in place to approve or deny applicants within the same day. This benefits the consumer by having a speedy response, but it also opens the door for instant approvals on fake identities.
Members of the U.S. Attorney’s Office and the U.S. Postal Inspection Service have spoken out about this issue, stating that “synthetic identity theft continues to become one of the fastest-growing consumer fraud schemes.” Both departments say they are committed to staying ahead of these criminal trends.