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Lenders Increasingly Targeted by Fake Identity Scams

The percentage of synthetic identities among attempted accounts reached an all-time high at the end of the first half of 2024

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  • Written by  Banking Exchange staff
 
 
Lenders Increasingly Targeted by Fake Identity Scams

The percentage of synthetic identities among attempted accounts opened by U.S. lenders for auto loans, bank credit cards, retail credit cards and unsecured personal loans reached an all-time high at the end of the first half of 2024, according to a new report by TransUnion.

Synthetic identity refers to a fake identity that combines real personal information (such as a Social Security number) with fraudulent or fabricated information, fraudsters create synthetic identities to pass identity verification checks for online platforms.

Based on the percentage of attempted account openings with synthetic identities, the market is facing a rising threat of charge-offs in the future.

Among attempted accounts opened using synthetic identities, auto loans appeared to be most attractive for fraudsters to stack up balances.

At the end of H1 2024, the total lender exposure to synthetic identities for auto loans had balances roughly double that of the bankcard sector, which ranked second among credit types analyzed.

As a result of the increase, lenders were exposed to $3.2 billion in potential losses, which is also an all-time high and 7% more than at the end of the first half of 2023.

Synthetic identities among attempted accounts opened rose 18% in 2024 compared to the previous year, according to the report.

TransUnion also found an increase in “credit washing”,  which is a scam where criminals using synthetic identities attempt to wipe out negative information from an identity’s credit history by making a false claim of identity fraud.

“These false credit report disputes could be made against accounts opened using a stolen consumer identity or synthetic identity, or unauthorized transactions on a consumer’s legitimate credit account,” according to the report.

The lender exposure measures were based upon TransUnion’s proprietary formula to capture potential total loss at risk for lenders.

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