The Federal Reserve System released a report on the potential hazards of synthetic identity payments fraud.
This fast-growing problem – which affects individuals, financial institutions, government agencies, and private industry – stems from the creation of a synthetic identity. This synthetic identity is created by using a combination of real information with fictional information, which may include a made-up name, address, or date of birth.
Criminals use synthetic identities to commit payments fraud, which can escape detection by today’s identity verification and credit-screening processes. Over time, fraudsters build up the creditworthiness of the synthetic identity, then “bust out” by purchasing expensive goods and services on credit and disappear.
Because the identity was fake to begin with, there is limited recourse in tracing the perpetrators and holding them accountable. Consumers whose Social Security numbers were used for these synthetic IDs face the burden of having to correct their credit reports. It could also lead to denial of disability benefits, rejection of tax returns, and inaccuracies in health records.
“Crime rings see attractive opportunities in synthetic identity payments fraud,” said Ken Montgomery, Federal Reserve System payments security strategy leader and chief operating officer at the Federal Reserve Bank of Boston. “Law enforcement officials, financial institutions, and other organizations recognize it as a growing concern. But unfortunately, many consumers don’t realize how it can hurt their access to credit or how to protect themselves,” he said. “The white paper provides information on the current state of synthetic identity fraud, including the scope of the issue, causes, contributing factors, and its impact on the payments industry.”
Consumers can learn read the full report, called “Synthetic Identity Fraud in the U.S. Payment System” at FedPaymentsImprovement.org.
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