A 5-step plan for catching synthetic identity fraud

Synthetic identity fraud, document fraud and identity theft fraud: These are the three most common forms of vehicle fraud the Houston Police Department must tackle, spurring auto lenders to work with their dealer partners to mitigate fraud.  

The Houston Police Department in 2022 retrieved 78 vehicles — $4.7 million worth of vehicles — from fraud in progress at auto dealerships through 125 investigations, Sgt. Darren Schlosser told Auto Finance News.  

Synthetic identity fraud leverages both real and falsified information on credit applications to make a consumer seem more creditworthy than they are.  

“We want to catch these crooks in the act because if the guy goes into a dealership with a fake ID and he gets a car, well, we’re then chasing a crook with a fake ID in a car,” Sgt. Schlosser said. “If he gets in the dealership and they turn him away, what’s going to happen? … Next dealership.”  

Here are five steps dealerships can use to catch synthetic identity fraud in the act.  

1. Invest in an ID-verification device.  

Investing in a machine that can detect fake IDs is the first line of defense against fraudsters using a synthetic identity, Schlosser said.  

“We’ve stopped [162 instances in which] people have tried to buy a vehicle using a fake ID” since 2018, representing $8.4 million in potential losses, Schlosser said. “And that’s just one area of our investigation.”  

2. Review the credit report carefully.  

Credit-reporting information should always fit with the age of the person, Schlosser said. For example, a 30-year-old consumer with only six months of active credit on file should prompt additional scrutiny.  

Lack of credit history is “a huge red flag that needs to be looked at closely,” he said.  

3. Collect full and accurate data on the credit application. 

Ensuring that full and accurate data is entered on every credit application is paramount, Schlosser said. Many investigations into successful fraud show that credit applications were incomplete.  

“Oftentimes, when we review the credit applications on fraudulent purchases, it is discovered the applications are incomplete, [have] limited details, or are blatantly incorrect information,” Schlosser said.  

4. Search engines are valuable resources 

Many fraudsters will continue to use similar resources, stories and fraudulent documents to scam dealers, Schlosser said. Conducting online searches for the applicant, the employer in question and even employer-listed phone numbers can help provide insight into the legitimacy of the applicant.  

5. Ensure contact information is accurate 

Organized crime rings typically lean on “burner” cell phones and email addresses, Schlosser said. To prevent this, finance and insurance managers can send out text messages and emails with a “code word” to verify.  

“Make sure the applicant can immediately access the phone/email to confirm the code word,” Schlosser said. “It can be as simple as the word ‘sportscar.’ This helps interrupt the organized crime rings.”