Beautiful Virgin Islands

Saturday, Sep 06, 2025

Synthetic identity fraud worrying U.S. regulators

Synthetic identity fraud worrying U.S. regulators

Synthetic identity fraud, one of the fastest-growing financial crimes in the United States, has become an increasing concern for regulators, as banks struggle to find common ways of tackling the innovative theft technique that combines real and fictitious data about individuals.

Estimates over the scale of the fraud vary, but nearly all show the problem growing. One widely reported analysis by Auriemma Group, an information and advisory firm for the payments and lending industries, suggested that synthetic identity fraud cost U.S. lenders $6 billion. Meanwhile, the consultancy McKinsey estimates the financial theft accounts for 10–15% of charge offs in a typical unsecured lending portfolio.

“When we look at the market, roughly 20% of credit losses stem from synthetic identity fraud,” said Johnny Ayers, CEO of Socure, a firm specializing in digital identity verification technology.

“Synthetic identity fraud opens up the door to bad actors in areas such as money laundering and human trafficking,” Ayers said. “One of the biggest challenges for banks is that there is traditionally not a victim.”

The growing theft has recently turned up in the U.S. government’s Paycheck Protection Program (PPP). According to a report from the SentiLink, a fraud-prevention tech firm, individuals have been creating synthetic identities to obtain loans from the program designed to help those struggling under the weight of the pandemic.

U.S. bank regulators, in particular the Federal Reserve, are increasingly focused on synthetic theft and have been working with banks and technology firms to help identify solutions and common definitions.

“Synthetic identity fraud is not a problem that any one organization or industry can tackle independently, given its far-reaching effects on the U.S. financial system,” said Jim Cunha, senior vice president at the Federal Reserve Bank of Boston, in a recent study.

Unlike other types of fraud


A synthetic identity is created by using a combination of real information, such as a legitimate Social Security number, and fictitious information, which can include a false name, address, or date of birth.

Synthetic identities can be used to establish accounts that behave like legitimate accounts and may not be flagged as suspicious using conventional fraud detection models. “This affords perpetrators the time to cultivate these identities, build positive credit histories, and increase their borrowing or spending power before ‘busting out’ – the process of maxing out a line of credit with no intention to repay,” according to the Boston Fed’s analysis.

There are two significant problems with synthetic fraud for the banking industry: one is detection, the other classification.

The fraudster can leverage legitimate processes, such as “piggybacking” – adding a synthetic identity as an authorized user on an account belonging to another individual with good credit. In many cases, the synthetic identity acquires the primary user’s established credit history, rapidly building a positive credit score. Fraudsters also can piggyback new identities onto accounts owned by established synthetic identities, or “sleepers,” within a portfolio.

According to experts, all of these methods are difficult for banks to detect given existing fraud prevention systems.

An ID Analytics study found that only half of synthetic fraudsters apply for credit using digital channels, indicating a significant number can pass Know Your Customer (KYC) tests even when appearing in person.

“Traditional fraud models are not designed to detect synthetic identities,” said the Boston Fed, citing research that showed such models were ineffective at catching 85% to 95% of likely synthetic identities.

Apart from the detection challenge, one of the biggest hurdles is how banks classify this type of fraud on their books, which varies and makes getting one’s hands around the problem more difficult.

“Part of the challenge is agreeing on a consistent definition of what synthetic identity fraud is,” said Ayers of Socure. Some banks categorize such fraud as credit losses, while others mark it as third-party fraud, he said.

“When there is not a consistent definition, you can’t figure out what the magnitude of the problem is,” Ayers added. “When there is not a consistent definition, then each of the individual banks are writing their own rules.”

Greater industry collaboration needed as no single solution


To tackle these problems, regulators say there needs to be greater collaboration between themselves, banks, and technology solution providers. Since the dimensions of the fraud are complex, with the criminals a step ahead of banks and their defenses, information sharing is critical.

Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
Trump Threatens Retaliatory Tariffs After EU Imposes €2.95 Billion Fine on Google
Tesla Board Proposes Unprecedented One-Trillion-Dollar Performance Package for Elon Musk
US Justice Department Launches Criminal Mortgage-Fraud Probe into Federal Reserve Governor Lisa Cook
Escalating Drug Trafficking and Violence in Latin America: A Growing Crisis
US and Taiwanese Defence Officials Held Secret Talks in Alaska
Report: Secret SEAL Team 6 Mission in North Korea Ordered by Trump in 2019 Ended in Failure
Gold Could Reach Nearly $5,000 if Fed Independence Is Undermined, Goldman Sachs Warns
Uruguay, Colombia and Paraguay Secure Places at 2026 World Cup
Florida Murder Case: The Adelson Family, the Killing of Dan Markel, and the Trial of Donna Adelson
Trump Administration Advances Plans to Rebrand Pentagon as Department of War Instead of the Fake Term Department of Defense
Big Tech Executives Laud Trump at White House Dinner, Unveil Massive U.S. Investments
Tether Expands into Gold Sector with Profit-Driven Diversification
‘Looks Like a Wig’: Online Users Express Concern Over Kate Middleton
Brand-New $1 Million Yacht Sinks Just Fifteen Minutes After Maiden Launch in Turkey
Here’s What the FBI Seized in John Bolton Raid — and the Legal Risks He Faces
Florida’s Vaccine Revolution: DeSantis Declares War on Mandates
Trump’s New War – and the ‘Drug Tyrant’ Fearing Invasion: ‘1,200 Missiles Aimed at Us’
"The Situation Has Never Been This Bad": The Fall of PepsiCo
At the Parade in China: Laser Weapons, 'Eagle Strike,' and a Missile Capable of 'Striking Anywhere in the World'
The Fashion Designer Who Became an Italian Symbol: Giorgio Armani Has Died at 91
Putin Celebrates ‘Unprecedentedly High’ Ties with China as Gazprom Seals Power of Siberia-2 Deal
China Unveils New Weapons in Grand Military Parade as Xi Hosts Putin and Kim
Queen Camilla’s Teenage Courage: Fended Off Attempted Assault on London Train, New Biography Reveals
Scottish Brothers Set Record in Historic Pacific Row
Rapper Cardi B Cleared of Liability in Los Angeles Civil Assault Trial
Google Avoids Break-Up in U.S. Antitrust Case as Stocks Rise
Couple celebrates 80th wedding anniversary at assisted living facility in Lancaster
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
The White House on LinkedIn Has Changed Their Profile Picture to Donald Trump
"Insulted the Prophet Muhammad": Woman Burned Alive by Angry Mob in Niger State, Nigeria
Trump Responds to Death Rumors – Announces 'Missile City'
Court of Appeal Allows Asylum Seekers to Remain at Essex Hotel Amid Local Tax Boycott Threats
Germany in Turmoil: Ukrainian Teenage Girl Pushed to Death by Illegal Iraqi Migrant
United Krack down on human rights: Graham Linehan Arrested at Heathrow Over Three X Posts, Hospitalised, Released on Bail with Posting Ban
Asian and Middle Eastern Investors Avoid US Markets
Ray Dalio Warns of US Shift to Autocracy
Eurozone Inflation Rises to 2.1% in August
Russia and China Sign New Gas Pipeline Deal
China's Robotics Industry Fuels Export Surge
Suntory Chairman Resigns After Police Probe
Gold Price Hits New All-Time Record
Von der Leyen's Plane Hit by Suspected Russian GPS Interference in an Incident Believed to Be Caused by Russia or by Pro-Peace or by Anti-Corruption European Activists
UK Fintechs Explore Buying US Banks
Greece Suspends 5% of Schools as Birth Rate Drops
Apollo to Launch $5 Billion Sports Investment Vehicle
Bolsonaro Trial Nears Close Amid US-Brazil Tension
European Banks Push for Lower Cross-Border Barriers
Poland's Offshore Wind Sector Attracts Investors
Nvidia Reveals: Two Mystery Customers Account for About 40% of Revenue
Woody Allen: "I Would Be Happy to Direct Trump Again in a Film"
×