Synthetic identity fraud is reported to be one of the fastest-growing types of financial crimes in the U.S., costing financial institutions billions in losses annually. To help better identify and mitigate this type of fraud, the Federal Reserve recently announced an industry-recommended definition of synthetic identity fraud. The definition was developed by a payments industry focus group of 12 fraud experts, which I’m honored to have been a part of, in response to a widespread issue of differing definitions in use, making it challenging to properly identify.
The industry-recommended definition of synthetic identity fraud (SIF) is the use of a combination of personally identifiable information (PII) to fabricate a person or entity in order to commit a dishonest act for personal or financial gain. The Federal Reserve and focus group members envision that a consistent definition for synthetic identity fraud will help the industry understand what constitutes this type of fraud and its impact on consumers, financial institutions and the overall U.S. payments system.
The Growing Need to Define Synthetic Identity Fraud
Since my previous blog on synthetic identity fraud nearly two years ago, awareness has grown around this emerging threat. Historically, many cases occurred when accountholders would seemingly stop paying and the accounts would classify as charged-off accounts, when actually, they were synthetic fraud events. Since the onset of the COVID-19 pandemic, this type of fraud has expanded, due to the rise in ecommerce and consumers setting up payment accounts online.
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