Synthetic identity fraud is a growing concern for credit unions that finance auto loans.
Auto loans make up a significant part of credit unions’ balance sheets. As of June, auto amounted to $360 billion, or 36% of total credit union outstandings, according to recent data from SentiLink, a fintech that identifies and blocks fake identities created to obtain a credit card, auto loan or other means of financing.
SentiLink analyzed 1,600 false identities and found that one in seven had a loan or an account with a credit union. The company also found that 273 of the 1,596 open lines of credit or loans it reviewed were tied to a credit union, of which 17% were auto loans.
In more than 80% of synthetic fraud cases at credit unions, identities are created using a consumer’s real name and date of birth tied to a Social Security number that does not belong to them. Credit unions may then pull the wrong credit report and inaccurately measure the consumer’s level of risk, according to the report.
Synthetic fraud costs banks about $3 billion a year, making it one of the biggest risks lenders face today, SentiLink spokeswoman Sarah Hoisington said Tuesday during the company’s webinar on the subject.
Financiers can limit their fraud risk by requesting an SSA-89 form authorizing the Social Security Administration to verify the number tied to a name, Chip Kohlweiler, vice president of security at Navy Federal Credit Union, said during the webinar. Navy Fed was the 21st–largest auto lender last year with $14.5 billion in outstandings, according to Big Wheels Auto Finance Data.
“That process today is very labor and manual intensive, but it’s really the best thing we have to see if the name and date of birth ties to the Social,” Kohlweiler said. Navy Fed, he added, sees a high rate of applicants who do not return the Social Security form, likely reflecting a mix of synthetic identities and legitimate members who don’t want to complete the process.
Lenders reviewing applications should also look for red flags, such as shell companies listed as a place of employment, and perform reverse searches of the borrower’s name and date of birth to check for multiple Social Security numbers, Matt Beardsley, head of high-risk consumer underwriting at Pentagon Federal Credit Union, said during the webinar.
Credit unions can also leverage technology to combat synthetic identity fraud. Austin Capital Bank, for one, runs applications through multiple databases to verify if the applicant matches an identity and if the provided tax ID number matches the individual, Chief Executive Erik Beguin said. Austin Capital had $226.5 million in total assets as of Oct. 29, according to iBanknet, which provides financial reports on banks and credit unions.
If an applicant cannot be verified, the bank uses a third-party vendor to automatically scan the driver’s license, verify the information against databases, and compare a selfie to the image on the driver’s license, Beguin noted. “We feel that is sort of as good as we can get for digital authentication of an individual,” Beguin said.
Meanwhile, as more institutions digitize their processes due to the COVID-19 pandemic, it is crucial for lenders to recognize synthetic fraud as fraudsters also move to online means, Beguin noted. “Fraudsters are picking up the pace and getting more sophisticated in what they do,” he said.
