The automotive industry has become quite familiar with the reality of synthetic identity fraud. Defined by the creation of fictious identities, we conservatively estimate that synthetic identity fraud accounts for more than $2.50 lost for every automotive loan made in North America. Multiply that by the tens of millions of automotive loans originated ever year, and synthetic identity fraud is a costly and growing problem.
We’ve seen the synthetic identity fraud issue cause concern across industries. According to a recent report from the Federal Reserve, “Detecting Synthetic Identity Fraud in the U.S. Payment System,” synthetic identity fraud accounts for roughly 20% of all credit losses.
With that much money at stake, automotive dealers and lenders need to address the problem head on. Unfortunately, there are obstacles that make synthetic identity fraud a less than simple issue to tackle.
No Crime Reported
Synthetic identities demonstrate positive credit behavior to access larger amounts of credit — enough to qualify for auto loans. The trend toward online loan origination provides criminals with a safe haven to probe loans and vehicles to determine what they can qualify to buy.
Synthetic identity fraud is difficult to detect. The “owner” of the identity is collusive in the crime. Without a victim to confirm that a loan was opened fraudulently, it’s difficult to identify synthetic identities and figure out ways to treat them.
Given how long synthetic identities take to create and cultivate — between 12 and 18 months — many fraudsters will look to maximize their profit margins. The automotive industry is ripe for attack.
All of these factors combine to put dealerships at risk.
The SSA Is on It
While the primary objective for automotive dealers and finance sources is to sell cars, it’s important to have the appropriate processes in place to prevent the headache that synthetic identity fraud will ultimately provide.
The Social Security Administration plans to launch the pilot program for its new electronic Consent Based Social Security Number Verification service in June 2020. eCBSV is designed to make the verification of Social Security numbers more efficient and minimize the risk of synthetic identity fraud.
Dealers and finance sources need to implement a multilayered approach that leverages advanced data and technology.
But the SSA’s program should not be viewed as a silver bullet. The concern is that the threat of eCBSV is enough to prompt criminals to monetize the synthetic identities they’ve created before their work is devalued.
To bridge the gap to June 2020 and beyond, dealers and finance sources need to implement a multilayered approach that leverages advanced data and technology.
Make a Connection
There’s an overreliance on basic demographic information and identity snapshots that are not effective at identifying synthetic identities. That information only tells half the story.
Deep analysis of an identity’s history, behavior and link analysis that connects details across the entire consumer universe are required to successfully identify synthetic identities.
Credit Bureau Connection is an example of an organization that uses advanced data and technology to help automotive dealers and lenders combat the rise in synthetic identity fraud.
In fact, earlier this year, CBC’s tools helped a Southern California dealership identify and apprehend an individual who attempted to purchase a luxury vehicle with a synthetic identity. It was later discovered that the individual was connected to an automotive fraud ring.
Synthetic identity fraud is an issue that will continue to cause problems for the automotive industry. Dealers and finance sources need to adapt to stay one step ahead. Advanced data and innovative technology, along with a multilayered strategy, can help these organizations detect fraudulent behavior early on and minimize the financial losses.
Chris Ryan is Experian’s senior fraud solutions consultant.