Compliance Dealership Training

Your Next Biggest Threat: Synthetic Fraud

Steve Roennau Vice President Compliance EFG Companies
Contributing Author:
Steve Roennau
Vice President
EFG Companies

Those of us who are active on social media likely have created an “avatar” – an image designed to represent ourselves digitally. Defined specifically in computing language, an avatar is the graphical representation of the user or the user’s alter ego or character. The avatar image says, “This is the image I want to project,” but it might be less than accurate.

Even the person actually walking into your dealership might not be who they say they are – even if they have legitimate data, like a valid social security number tied to a legitimate address, to support their claim.

Synthetic fraud is the fastest growing form of identity theft in the U.S., comprising 80% of all new account fraud. The fraudulent tactic uses a combination of real and fake personally identifiable information (PII) to create new credit profiles and pump up credit scores, allowing the criminal to access goods and services.

The most common method of synthetic fraud is professional criminals using a variety of methods to make money exploiting the systemic weaknesses of the U.S. credit system.  It may involve theft of a child’s real identity and applying for an employer identification number (EIN). Then, the criminal builds a synthetic credit profile with the victim’s real name, social security number, and date of birth (DOB), with a different address or phone number. Next, the professional criminal applies for credit through mortgage refinancing or a car loan, which pulls the report from all three major U.S. credit bureaus (Experian, Equifax and TransUnion).  While the application may be denied, the process of reviewing the application creates a new credit profile at all three bureaus (also known as “tri-merging”) with the synthetic information. A few more steps and the fraudulent profile is complete, including lines of credit, employment history, mail received, etc. And now that criminal looks legitimate on paper.  

With synthetic fraud, everything may seem legitimate at first blush. For the dealer, they move a car off the lot. For the lender, they have a loan in good standing. Unfortunately, the person who was originally assigned the particular social security number has no knowledge of the loan, and may never find out until the loan defaults or fraud is uncovered.

Reliance on automated credit reporting systems and can allow synthetic fraud to thrive in the retail automotive market. Synthetic profiles are built to fall within typical automated credit reporting parameters:  high credit score, age, an open-source online presence, time at address and employer, upper average salary, etc.

Make sure you use several forms of identification to verify the person in front of you is who they say they are. Remember, you can always ask personally identifying questions from the credit report. And, if something doesn’t add up, get a manager involved.

With more than 40 years of helping dealers achieve their profitability and business goals, EFG Companies works with you to protect your business with AFIP certification and ongoing compliance audits. Contact us to learn more.

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