Auto finance fraud often is perpetrated using identity theft. But the fastest growing type of identity theft, synthetic identity fraud, is largely unknown to the public and a mounting threat for auto lenders, experts say.
Synthetic identity fraud occurs when a criminal combines real and fake information to create a new identity to open fraudulent loan accounts and make fraudulent purchases. Synthetic identities can have a real Social Security number from one person and an address, date of birth and phone number from three others, in some cases, making it extremely difficult to detect. In many cases, the fraudster uses the Social Security number of a minor, so the theft goes undetected at least until the minor establishes a credit profile, said Keir Breitenfeld, senior business consultant at Experian.
Fraudsters can even "piggyback" on other consumers' credit profiles. For a payment of a few hundred dollars, some consumers will add a fraudster to their credit file, creating a credit score for the synthetic identity, said Frank McKenna, chief strategist at fraud specialist PointPredictive Inc.
There was a time when lenders could verify standard identification data and feel confident, Breitenfeld said. "That's out the window now. It's very easy for fraudsters to assume or create an identity."
Combatting synthetic identity fraud means looking at each identification component and its history, he said. For example, lenders should be able to determine how many times an address or Social Security number has been used within a certain time frame and with how many names.
"This is the new baseline to understand the validity of the identity and what is happening with this identity," Breitenfeld said.