Many Ways to Commit Fraud
Unlike other types of fraud, payment behavior does not always indicate synthetic identity fraud. Once a synthetic identity enters a portfolio, its account activity often mimics that of a normal – and even upstanding – customer, with timely and in-full payment history. Once a loss is incurred, there are not any indicators that fraud occurred. Rather, it appears to be a real customer who simply was unable to pay off his or her credit balance.
Consider this scenario where an application for a credit card was received with the following information:
- FICO score of 750
- Oldest tradeline was 20 years old, but was an authorized user tradeline
- The only types of tradelines reported on the applicant’s credit file were unsecured lines of credit
- The applicant’s credit file showed 8 new inquiries for credit
- Adjusted Gross Income (AGI) was reported to be $125,000
Upon review, the application was approved, and a credit line of $20,000 was issued. For 3 years, the customer never missed a payment, and was therefore able to continually have his credit line increased to double that of the initial offering. There was then a $40,000 credit line that was maxed out and ended up being charged off by the bank. As there were no indicators of fraud, the account was charged off as a credit loss and never reported as fraud.
Synthetic identities can be used in many ways to commit fraud. While some users are simply trying to make a living, others are financing international terrorism. Despite this vast variation in intent, they are all considered to be fraudulent. Uses include:
- Fraud for living
- Payment default scheme
- Credit repair
- Money mule activity
- Facilitating human and/or narcotics trafficking
- Organizing and financing terrorist attacks
While each fraudster is likely to set up several synthetic identities, the same synthetic also can be used multiple times to increase the payout, whether it is used at the same or various institutions. Fraudsters identify gaps to take advantage of – and when they do, they have the synthetics ready to capitalize on these vulnerabilities.
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Downloadable Resources
Explore these fraud resources for additional information on how synthetic identities are used.
| Document Title | Format | Reading Time |
|---|---|---|
| How Synthetic Identities are Used to Commit Fraud (PDF) | Document | 5 minutes |
| The Danger of Money Mules (PDF) | Document | 4 minutes |
| How Fraudsters Increase Their Payouts (PDF) | Document | 5 minutes |
| What's Hiding in Your Portfolio? (PDF) | Document | 3 minutes |
Explore the toolkit modules below for resources to help improve awareness, detection, measurement and mitigation.
The synthetic identity fraud mitigation toolkit was developed by the Federal Reserve to help educate the industry about synthetic identity fraud and outline potential ways to help detect and mitigate this fraud type. Insights for this toolkit were provided through interviews with industry experts, publicly available research, and team member expertise. This toolkit is not intended to result in any regulatory or reporting requirements, imply any liabilities for fraud loss, or confer any legal status, legal definitions, or legal rights or responsibilities. While use of this toolkit throughout the industry is encouraged, utilization of the toolkit is voluntary at the discretion of each individual entity. Absent written consent, this toolkit may not be used in a manner that suggests the Federal Reserve endorses a third-party product or service.