Criminals with a lot of time on their hands are committing a con that can take years to pay off and sounds like something out of the future: Synthetic identity fraud.
Instead of the traditional identity theft of stealing an existing identity from someone and posing as them, synthetic identity fraud criminals create a new synthetic identity by stealing real Social Security Numbers from people who aren’t actively using them. Identities with fake addresses, birth dates and names are then set up and over years the thieves build credit for the fake IDs they’ve set up as “synthetic” identities.
Eventually, they pile up debts on fake credit card accounts opened with synthetic IDs and walk away without ever paying the bills.
It’s a con that can take years to accomplish. It can also take years to uncover because it’s targeted at people who don’t regularly use credit — children, and in some cases, senior citizens who don’t use credit much. For children without a credit history, thieves can have a clean slate with a stolen SSN to create a synthetic identity and max out a credit card years later.
More than $6 billion in losses were attributed to synthetic identity fraud in 2016.
This type of fraud could have become easier in 2011 when the Social Security Administration changed how it set SSNs. The three parts of an individual number used to correspond to other data points for a specific person, such as their year of birth or state where they were born.
The SSA changed the system to randomly create new numbers, which it thought would make it more difficult for thieves to guess someone’s SSN by using other public information available, such as a state or year of birth.
But the change made it harder for banks, health care providers and others to verify if someone was using a SSN fraudulently.
Changes Proposed to Battle ID Theft
Children could have their credit scores and financial futures ruined before they even finish school, said U.S. Sen Gary Peters of Michigan, part of a group of senators urging the Social Security Administration to change how SSNs are used when applying for credit.
The group is proposing that the SSA require financial institutions to match each customer’s identity with their SSN when applying for loans, mortgages and credit cards.
“This commonsense step will modernize the way lenders verify identities, protect children from identity theft and help prevent billions of dollars in losses from fraudulent loans,” Peters said in a statement.
The SSA database is currently only used to verify that SSNs match other ID details for mortgage applications. A written signature from the applicant is required. Peters and three other U.S. senators are asking the SSA to expand the verification process to other types of loans, and to modernize it to allow electronic signatures that could allow synthetic identity theft fraud to be discovered faster.
While the Social Security Numbers that are stolen are real, the birth dates and addresses are made up for the synthetic IDs. Combining the fake information with the real SSN is possible partly because there isn’t an efficient, modern method to confirm that a name, SSN and date of birth belong to a real person, the senators wrote in a letter to the Social Security Administration commissioner.
The issue is made worse by consumers who expect “instant” delivery of financial products and services, the senators wrote.
A Similar Program Exists
A program that’s similar to the one proposed is already in place for private businesses. In 2002 the SSA created a program that’s now called the Consent-Based Social Security Number Verification system, or CBSV. It gives banks the ability, with the individual’s consent, to verify if a name, DOB and SSN match a government-derived source of truth to fight fraud.
One drawback of CBSV, according to the senators’ letter, is that users of the CBSV system must obtain the written, physical signature of the person before accessing the database. That requirement “unnecessarily impedes CBSV’s usefulness in preventing identity theft,” they wrote.
Mortgage applications remain paper-intensive, but many financial services are digital with instant access, and consumers expect quick determinations. The physical signature requirement of CBSV negates its utility in combating synthetic identity fraud, according to the senators.
Instead, the SSA should accept the electronic consent of an individual to access CBSV, and the SSA commissioner can make this change without new legislation, they said.
The federal government encourages electronic signatures through two existing laws. The Office of Management and Budget encourages the federal government to use a range of electronic signature alternatives.
To keep SSNs and other personally identifiable information protected, the senators wrote that they’re pleased that the CBSV system doesn’t pass along SSNs and other identifying information, but uses machine-to-machine numerical responses corresponding to “yes,” “no,” or “deceased.”
Some financial institutions are already doing more to combat synthetic identity fraud. Community banks are requiring customers to show up at a physical branch to open an account or apply for credit.
But in a world where many things are done digitally, that may not be easy for many people. One possible solution is for artificial intelligence engines to comb through social media and other data to confirm an applicant’s identity.
For example, a bank robot could check if the credit applicant uses social media in the city they say they’re from, or if the year they say they graduated from high school can be cross-checked with a yearbook.
Voice recognition technology could be used at call centers to check if a voice has called under a different identity.
For parents who wonder if their children’s SSN have been stolen, a simple way to check is to check the credit reports of their children. Having anything on that report, such as a request for a credit card, should be enough to raise their suspicions.
Aaron Crowe is a freelance journalist who specializes in personal finance topics. Follow him on Twitter @AaronCrowe or at his website, AaronCrowe.net. He also writes about his family’s finances at CashSmarter.com.