Synthetic Identity Fraud Can Haunt Credit Unions


Synthetic identity theft has emerged as one of the major fraud activities over the past five years. It’s a growing threat to credit unions and it’s costing all financial institutions billions of dollars. It’s a type of fraud in which a criminal uses fake information, sometimes combined with real (usually stolen) data, to create a fictitious identity. The scammers steal social security numbers that are seldom used — mainly from the elderly and children — to create false identities. This made-up identity is used to open fraudulent accounts and make fraudulent purchases.

Credit unions and other financial institutions often fall prey to synthetic identity theft since much of the information criminals provide them is legitimate. Synthetic identity theft allows the criminals to steal from lenders by opening credit cards, auto loans, and other accounts. In January, Accenture PLC listed synthetic-identity fraud as one of the biggest threats facing financial institutions in 2018.

“Synthetic identity theft becomes a bigger problem for credit unions every day. It’s important for leaders to know there are systems that can help protect against this growing threat,” said Jason Smith, VP of Strategic Resources for NWCUA.

It’s crucial to understand how a credit file is created and Vero — a CU Direct company — has the knowledge and experience to explain this ever-growing threat, and, most importantly, the ability to help credit unions protect against “phantom borrowers.”

Synthetic identity fraud exploits a weakness in America’s consumer-credit system. Lenders often consider a loan applicant legitimate if the applicant has a credit report at one of the three leading credit bureaus. But new credit files — essentially precursors to a credit reports from a credit bureau — often get created when someone simply applies for a loan, even if it is denied. If one lender approves a loan for the fictitious individual, the information can make the file a full-fledged credit report. Here’s how a phantom borrower is born.

  • Scammer applies for a loan using a fake identity.
  • A query to a credit-reporting firm reveals no borrowing history. Applicant likely is rejected.
  • That query results in a new credit file, a precursor to a credit report. Suddenly, a new identity has been born.
  • The scammer applies for more loans, expanding the credit file, giving lenders a perception that the applicant is real.

TransUnion and Experian report that it’s difficult to distinguish between a phantom borrower and a real borrower, who’s applying for credit for the first time without identifying information on file. Synthetic identity theft may account for 5 percent of uncollected debt and up to 20 percent of credit losses, or $6 billion in 2016, according to some industry analysts. The problem is even more acute with auto loans and, additionally, TransUnion reports that a record $355 million in outstanding credit-card balances was owed by people who it suspects didn’t exist in 2017.

One of the reasons that more criminals are using the synthetic identity scam is that lenders have gotten better at protecting against traditional identity theft, which often involves using stolen data about real consumers. When bypassing actual consumers, scammers send fewer red flags.

While individuals probably won’t get a high spending-limit card or large loan without a repayment history, some identity scammers pay bills promptly to qualify for higher limits, and then default on larger loans, or when credit card has been maxed out, which costs financial institutions hours of work to track down individuals who don’t exist.

Fortunately for lenders, synthetic identity fraud detection and prevention strategies have evolved, as well. Synthetic identity theft can cost credit unions both money and time, in terms of numerous unrecoverable hours. Implementing strong recovery security processes, such as the use of biometrics and cross-referenced background checks for identity verification can help stop scammers.

Vero offers credit unions identity recovery systems that utilize digital technology, neural networks and predictive analytics — all powered by machine learning and artificial intelligence. The system can scan large databases such as those generated by data-furnishing front companies, more quickly. The company’s ID theft solutions are just one way that Vero helps credit unions and their members.

For example, Vero offers IDProSelect, which provides credit unions with data breach and fraud protection while addressing overall risk management needs and compliance with federal laws. IDProSelect is a complete recovery service for all forms of identity theft to members, employees, officers and board members, and is an excellent benefit to increase the value proposition in maintaining and growing a member base. Credit unions can also use Vero’s ElderITPro to protect their older members. Additionally, another Vero solution — Vbiz — helps credit unions serve valued small business accounts by providing them with long-term protection against all types of data breach and fraud events.

Having greater cybersecurity preparedness needs to be a top priority for all financial institutions. Strong cybersecurity preparedness isn’t cheap, so credit unions must search and find solutions that also generate new income streams while delivering cybersecurity preparedness. Vero helps credit unions avoid becoming victims of synthetic identity fraud, adding value for members and offering peace of mind and security.

Editor’s note: To learn more about your Association’s Strategic Partnership with Vero, contact Jason Smith, VP of Strategic Resources, at


“The New ID Theft: Thousands of Credit Applicants Who Don’t Exist” WSJ, 6 March. 2018,

Posted in Business Solutions.