So-called “synthetic” fraud, where thieves create a phony identity based in part on genuine customer information, is a growing problem in auto finance.
“Synthetic is a massive problem in the marketplace,” said Ken Allen, senior vice president, identity and fraud, for Atlanta-based Equifax Inc., the consumer credit reporting agency.
The other two main credit bureaus are Experian, with U.S. headquarters in Costa Mesa, Calif., and TransUnion, Chicago. The credit bureaus maintain and constantly update individual consumers’ credit histories. Lenders use the data to help gauge how likely someone is to repay a loan.
Ironically, part of what’s driving identity thieves to go after auto loans is the fact that chip-equipped credit cards have made credit-card fraud more difficult. That makes auto finance fraud a path of less resistance, experts said.
“Nothing is foolproof, but it is definitely harder to impersonate a physical card,” Allen told Forbes.com in a phone interview. “That is a factor that has caused the finite number of bad actors to shift from card fraud to other ways they can monetize the customer data.”
To guard against synthetic fraud, he recommended consumers should consider putting a security freeze on their credit history on file with the credit bureaus. That means no new lenders can access your credit report – a preliminary step for creating a new account or taking out a new loan in that consumer’s name –unless the consumer un-freezes the account. (see related story)
It takes considerable time and effort – probably years – for thieves to successfully take out a bogus auto loan by establishing what looks like a bona fide credit history. Identity thieves create credit accounts, purchase usually relatively inexpensive goods and services, and make on-time payments, Allen said.
The same individual may create hundreds of fake accounts, experts said. What makes it “synthetic” fraud is that the thieves combine actual consumer information with fake information, critically including a bogus address where they receive statements.
“Pieces of the i.d. are real. The personal identifying information could be real. There are other components that are not real. It’s the hybrid of the two. Generally they’re not created from scratch; it’s not from nothing,” he said.
