In its most recent reporting year, the Federal Trade Commission (FTC) counted 1.4 million cases of identity theft, in which a criminal assumes the victim’s identity and opens credit accounts in their name.
In recent years a subset of that kind of identity fraud has developed – synthetic identity theft. It’s easier for the fraudster because all they need is the victim’s Social Security number. They then make up a name, address, date of birth, and other information required to open an account.
The advantage for the scammer is that it is easier to do and it may take longer for the fraudulent charges to come to the attention of the victim.
Identity thieves who have created synthetic identities usually commit financial crimes, applying for loans and opening credit card accounts. In recent years they have used synthetic identities to file phony federal tax returns with the stolen Social Security number and collect large refunds.
The Internal Revenue Service (IRS) has responded with several measures to counter this crime. One is requiring a taxpayer to report the adjusted gross income on the previous year’s tax form, information an identity thief is unlikely to have.
Multiple ways to commit fraud
Synthetic identities offer thieves several ways to commit fraud. Criminal enterprises can use fraudulent accounts associated with synthetic identities to access or store funds, a form of money laundering. An independent scammer may take out a personal loan online with no intention of paying it back.
Since the transactions are done digitally, it can be easy for a fraudster to get around a financial institution’s fraud detection. Since these synthetic identities sometimes look legitimate, many lenders and banks have difficulty flagging these accounts as suspicious.
“This synthetic ID thing is huge,” Law Helie, general manager of the Consumer Banking product line at cloud banking firm nCino, told ConsumerAffairs. “I forgot what the losses were last year but it was in the billions of dollars. Because you can cobble together pieces of information and create a facsimile of a person with just enough data to get past those initial checks. It’s a very challenging issue.”
When a scammer uses your Social Security number to create a new identity, it can result in what the credit agencies call a “fragmented” credit file. The credit information created by the new, synthetic identity gets attached to your credit history. When the scammer runs up huge bills with no intention of paying them, it’s your credit score that takes the hit.
A recent ConsumerAffairs study found that recorded instances of identity theft have soared by 584% over the last 20 years. In the last decade, Louisiana, Delaware and Pennsylvania saw the largest increase in identity theft reports per 100,000 people.