Safeguarding Your Portfolio from Synthetic Identity Fraud

Published: October 17, 2023 by Laura Burrows

Debt collectors need to find, contact and work with people to collect on unpaid accounts. That can be challenging enough. But when synthetic identity fraud accounts are mixed into your collection portfolio, you’ll waste resources trying to collect from people who don’t even exist.

What is synthetic identity fraud?

Synthetic identity fraud happens when fraudsters mix real and fake identity information — such as a stolen Social Security number (SSN) with a fake name and date of birth — to create an identity.

Fraudsters occasionally try to quickly create and use synthetic IDs to commit fraud. But these are often more complex operations, and the fraudsters spend months or years building synthetic IDs. They might then use or sell an identity once it has a thick credit file, matching identification documents and a robust social media presence.

The resulting fraud can have a significant impact on lenders. By some estimates, annual synthetic fraud losses for consumer loans and credit cards could be as high as $11 billion.1 Total annual losses are likely even higher because organizations may misclassify synthetic fraud losses — or not classify them at all — and fraudsters also target other types of organizations, such as business lenders and medical care providers

Recognizing synthetic identities and fraud losses

Organizations can ideally detect and stop synthetic IDs at account opening. If a fraudster slips past the first line of defense, fraud detection tools that aren’t tailored for synthetic identity fraud might not flag the account as suspicious. This is especially true when fraudsters make several on-time payments, mirroring a legitimate account holder’s behavior, before stopping payments or busting out.

Sometimes, these past-due accounts get sent to collections before being written off as a credit loss. That creates new issues. Debt management and collections systems can help collections departments prioritize outreach and minimize charge-offs. But if you add fraudulent accounts to the mix, you wind up throwing away your time and resources.

Even when you properly classify these written-off accounts as fraud losses, it can be hard to distinguish between first-party fraud by a legitimate consumer and synthetic identity fraud losses. However, the distinction can be important for optimizing your credit risk strategy.

Detection is the key to prevention

Keeping synthetic fraud out of collection portfolios requires a multi-layered approach to fraud management. You need systems to help stop synthetic fraud at the front door and ongoing account monitoring throughout the customer lifecycle. You also want fraud solutions that use data from multiple sources to recognize synthetic identities, such as credit bureau, public records, consortium and behavioral data.

Experian’s industry-leading fraud and identity solutions

Experian’s synthetic identity fraud and identity resolution solutions make it a leader in the space. These include:

  • Sure Profile™uses credit, public record and identity-specific data to create a composite history of a consumer’s identity and generate a risk score. You can automate risk-based decisions based on the score, and you’ll have access to the underlying Sure Profile attributes.
  • CrossCore® is a cloud-based identity and fraud management platform that you can connect to Experian, third-party and internal tools to get a 360-degree view of your accounts throughout the customer lifecycle.
  • Experian partners with the Social Security Administration to offer an electronic Consent Based Social Security Number Verification (eCBSV) service, which can help you determine if an SSN, name and date of birth match. It can be an important part of a step-up verification when risk signals indicate that an identity might not be legitimate.

View our tip sheet to learn more about keeping fraudulent accounts out of your collection portfolio.

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