Synthetic identity fraud, which has increased as the pandemic forced the shift to digitization, continues to worsen as fraudsters gain confidence.
This type of identity theft uses a consumer’s real name and real date of birth paired with a false Social Security number. The combination of real and false information allows fraudsters to pass most identification checks and gain access to financing.
As synthetic identity fraud becomes more prevalent within the auto finance industry, scammers are gaining confidence in their ability to produce credit scores between 720 and 780, Naftali Harris, chief executive of SentiLink, a fintech that helps auto lenders prevent fake identities from onboarding, told Auto Finance News. However, these fraudsters are 10 times more likely to default — 24.9% more likely to default in the first year with average charge offs of $5,300, according to SentiLink, which collected data on more than 250,000 tradelines from 2018 to 2020.
“These [scammers] are the ones that really knew what they were doing and made all the effort to get a good credit score,” Harris said. “The reasons these [rates of delinquency] are so much worse is that these are the fraudsters that are the most brazen.”
Lenders can combat fraudulent activity during the application process by focusing on tying the consumer’s name and date of birth to the Social Security number, Harris said. One specific red flag to watch for are randomly assigned Social Security numbers issued in a year and state that don’t match an applicant’s date of birth and address history.
On top of physically watching for discrepancies in the application process, lenders can also leverage technologies that flag anomalies, request further documentation from the consumer and look beyond the credit report, Harris said. “Even though they have a credit report and the identities match, if it doesn’t make sense fundamentally then it’s something [lenders] need to look into,” he said.
This year’s fraud losses are estimated to increase 6.85% year over year to $7.8 billion, with identity fraud accounting for $1.2 billion, PointPredictive Chief Strategist Frank McKenna previously told AFN.
While lenders can implement practices to combat synthetic identity fraud, they must also be aware of other schemes plaguing the industry, including continued unemployment fraud and credit washing schemes, McKenna noted.
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