The Federal Reserve looks at ways to counter what is thought to be the fastest-growing type of financial crime in the country
The United States’ Federal Reserve has published advice for financial institutions located in the US on how to mitigate risks of synthetic identity payments fraud. Citing an analysis by the Auriemma Group, the Fed noted that synthetic identity fraud cost US lenders around US$6 billion and was responsible for 20% of credit losses in 2016.
Scammers usually create synthetic identities by piecing together bits and pieces of real and fake information, which includes Personally Identifiable Information (PII), such as names, Social Security Numbers (SSN), and addresses. They frequently target individuals, who are less likely to check their credit information often, such as children, the elderly, or even homeless people. The upside of utilizing this method for fraudsters is that synthetic identities act like legitimate accounts, which means they evade conventional means of fraud detection.
“This affords perpetrators the time to cultivate these identities, build positive credit histories, and increase their borrowing or spending power before ‘busting out’ – the process of maxing out a line of credit with no intention to repay,” warns the Federal Reserve.
The guidance, entitled “Mitigating Synthetic Identity Fraud in the U.S. Payment System”, is the third publication in a series of white papers dedicated to synthetic payments fraud; the previous two instalments were published last year and focused on defining and identifying this type of fraud.
In its newest whitepaper, the Fed points out that institutions shouldn’t rely only on one screening method to combat what a recent shares insight combat synthetic identity fraud
