The fastest-growing form of financial fraud hits banks

CNBC’s Kate Rooney reports on synthetic IDs, the fastest-growing form of financial crime hitting banks.

It started out like any other online loan.

Notre Dame Federal Credit Union reviewed the application. It did the necessary background checks, and authenticated the applicant’s credit score and background. But it wasn’t until a group of borrowers in Missouri abruptly stopped making payments that the South Bend, Indiana-based lender smelled trouble.

“These looked like bona fide real people — but when you pulled all of them together, especially out of the specific geographic area, red flags and alarm bells started going off,” said Brian Vitale, chief risk and compliance officer at Notre Dame Federal Credit Union. “We finally identified that these people didn’t exist. Unfortunately by that time, we were out 0,000.”

What the firm learned in hindsight was that the “people” applying for loans never existed. The credit union was a victim of “synthetic identity fraud.” Instead of stealing another person’s identity, a fraudster invents an entirely new, fake person and applies for anything from auto loans to credit cards.

The Indiana credit union is not the only victim. Boston-based Aite Group estimates this type of fraud costs U.S. lenders between ,000 to ,000 per incident. One estimate from Auriemma Insights puts the losses at billion annually. This is the fastest-growing financial crime, according to the Federal Reserve, driven in part by lending moving online.

The rise of “Frankenstein” fraud

To fool lenders, fraudsters pick a random social security number, or buy one on the dark web. They will often look for one that was issued to someone younger than 18 years old — ensuring that person doesn’t have credit history. They then link a fake name, date of birth, and in some cases social media accounts. They start applying for credit and building up a FICO score, which in some cases takes years.

“It’s a really long con and an expensive one,” Naftali Harris, co-founder and CEO of San Francisco-based start-up SentiLink, told CNBC. “But once you have this fake person who has an 800 credit score, you can then use that to get multiple high limit credit cards and unsecured loans from banks.”

Credit bureaus link FICO scores to multiple factors — address, name, date of birth — as well as social security number. Harris said it’s common for a social security number to be linked to multiple names, because of human error or a name change. As a result, banks often ignore the “flag” that goes up.

SentiLink uses data to help customers, including three of the top ten U.S. banks, to determine if a borrower is real or using a fake identity. Harris was a data scientist at Affirm, which was started by PayPal founder Max Levchin. Levchin is now backing the company, along with Andreessen Horowitz. Harris first came across the type of fraud at Affirm and found that synthetic identities show certain patterns that data can identify.

“Synthetic identities and real identities behave very differently,” he said. “Real people show up, in terms of their credit history, roughly when they’re 18 or in their twenties and go about their lives living in a pretty ordinary way. Synthetic identities, though, behave in really erratic ways.”

Harris pointed to red flags like moving around a lot or aggressively growing credit. In many cases, he said they find organized crime rings that produce hundreds of different synthetic identities that behave in the same “unusual” way.

These instances are often under-reported, and categorized as normal credit losses. The Federal Reserve estimates that 80% to 90% of these instances are categorized as a credit losses.

For access to live and exclusive video from CNBC subscribe to CNBC PRO:

» Subscribe to CNBC TV:
» Subscribe to CNBC:
» Subscribe to CNBC Classic:

Turn to CNBC TV for the latest stock market news and analysis. From market futures to live price updates CNBC is the leader in business news worldwide.

Connect with CNBC News Online
Get the latest news:
Follow CNBC on LinkedIn:
Follow CNBC News on Facebook:
Follow CNBC News on Twitter:
Follow CNBC News on Instagram:

Video Rating: / 5

9 thoughts on “The fastest-growing form of financial fraud hits banks

  1. Go shop with @Darkphate on telegram he is the best imhe have been helping me with card for about three months now and he never disappoint me in any of my delivery


    Dear Sir/Madam

    EVIDENCE to show that if banks make signature, pin and passwords FOOLPROOF as proposed than exponentially growing fraud and cyber crimes will stop permanently.

    We will always remain one step ahead of identity fraudsters and cyber criminals if banks implement proposed universal systems invented to make our signature, PIN and passwords foolproof. None of our smart anti-fraud digital systems are foolproof and so rather than solving the problems they make them worse.

    Fraudsters and cyber criminals are proving to us that our signature, PIN and passwords are NOT FOOLPROOF and that is why criminals are stealing money from us ‘by fooling us. These exponentially growing crimes will STOP permanently if banks implement proposed simple foolproof systems invented to restore honesty by personalising signature, pin and passwords to the individuals so criminals will not have options to misuse them.

    To make signature foolproof all banks have to do is provide us small ID stickers with our photo, name, banks’s logo and copyright symbol printed on it. To personalise signature on all face to face transaction documents such as contracts, agreements, loan application forms, delivery notes (To deter mail order fraud), cheques (To deter cheque fraud) , receipts (To deter bogus trader fraud), immigration forms etc. all we have to do is to apply ID sticker to the document and countersign. This is the best way to make invisible money stealing thieves visible since signatures don’t even expose fraudster’s gender. This copyright protected © idea of personalising signatures via photo and thumbprint on ID sticker and document will make signature system foolproof WOULD IT NOT?

    To personalise PIN and passwords to the individuals all banks have to do is to store our PiN (large alpha numeric number compared to four digits) in key size thumbprint activated memory stick and use contact free technology to activate this electronic PIN called EPIN at retail outlets, ATMs and even online without using key pad. This would be the best way to stop invisible enemies from obtaining our PIN and passwords and misusing them.EPIN personalised by thumbprint can change to new value after every transaction if we wish to make the system even more safer. This copyright protected © idea will make PIN and passwords foolproof and hence will stop fraud, cybercrime, computer hacking and even data breaches WOULD IT NOT?

    To stop cyber criminals from clearing victim’s bank accounts all banks have to do is to agree minimal funds to be free for withdrawal but funds above this minimal amount will be blocked for everyone including customer who has to let the bank the amount they want to withdraw and than withdrawal would be blocked again. This copyright protected © idea will make money withdrawal system foolproof WOULD IT NOT?

    Government, courts, police and most of all the public ( Victims )must put pressure banks to implement proposed systems before all these financial crimes become PANDEMIC LIKE CORONA or banks should take responsibility for all fraud losses.

    By stopping these crimes along with victims and banks police, courts and prisons will be saving fortunes which could be used elsewhere to make our quality of life better.

    I request WHICH to put pressure on banks to implement proposed systems to protect consumers from becoming victims of fraud and cyber crimes.

    If you have any questions, please do not hesitate to contact me the inventor.

    Thank you.


    Yoendra Raja (Inventor of these patented and copyrights protected honesty restoring Ideas)

    Visual Security International Limited. U.K.

  3. “…”Lenders are loosening their lending standards in this recent economic boom…” That was the most insight during the whole clip.

Comments are closed.