By Lydia Beyoud
Cracking down on a growing and sophisticated form of credit card identity fraud could depend on something as simple as a database.
Digital access to the Social Security Administration’s record of valid Social Security numbers (SSNs) would help banks and credit card companies crack down on synthetic identity fraud, according to the industry. The schemes are a type of slow-burn fraud combining real and fake identity data, including SSNs, to simulate real people. The fraud overwhelmingly affects children who aren’t using their SSNs to apply for credit.
“This is one of the few fraud problems that actually has a solution,” Rick Cooney, senior vice president of fraud risk at consumer credit company Synchrony, told Bloomberg Law.
A new congressional mandate would require the Social Security Administration to make it easier to access the database online, but the agency hasn’t shown any signs of moving forward yet or given any indication of who would be responsible for making it happen.
The catalyst is a provision tucked into the law enacted last month that restructures parts of the 2010 Dodd-Frank Act.
The new law, signed May 24 by President Donald Trump, requires the Social Security Administration to help banks and credit companies electronically verify new applicants’ identities with an existing database of SSNs. Financial institutions can already use the database, but it requires a credit applicant’s inked signature on a government form and can take days or weeks to hear back from the SSA. The industry is hoping the new law will enable financial institutions to get a response back in near-real time.
The Federal Trade Commission describes synthetic ID fraud as one of the fastest-growing and most difficult forms of fraud to detect. The schemes use combinations of data points, including unused SSNs, dates of birth, names, and addresses, to create a fictitious person. Fraudsters build up credit histories for fake personas over years, until they “bust out,” maxing out credit cards before disappearing.
With few victims aware of their stolen SSNs, it’s difficult to estimate the total amount of synthetic ID fraud affecting U.S citizens. But the volume can be staggering. The Justice Department arrested 18 men in an international crime ring in 2013. Together, they created more than 7,000 fake identities, obtained 25,000 credit cards, and tried to get away with more than $200 million in fraudulent charges.
In 2016, synthetic ID fraud may have cost credit providers more than $6 billion, which accounts for up to 20 percent of credit losses, according to financial services consulting company Auriemma Consulting Group.
It’s difficult to tell a legitimate applicant from a fraudster. “The hardest thing for a financial services industry or a lender to do is figure out, with all the lending laws that we have to follow, if somebody’s really synthetic,” Cooney said.
“There is no place I can go, other than the Social Security Administration, to find that out,” he added.
The financial services industry says it’s ready to work together with the agency to get the technology in place now that the law has been enacted.
“The key here now is for all the players, the SSA, and the industry, financial institutions, to work together to really implement this program at the SSA,” Scott Talbott, senior vice president for government relations at the Electronic Transactions Association. The trade group’s members include major credit card, banking, and payments companies.
The timeline for building the portal is contingent on the cost. Both are unknown. “As this law was recently passed, we are reviewing the legislation and are in the early stages of implementation,” Social Security Administration spokesman Darren Lutz said by e-mail. “At this time, we do not have additional information to provide.”
Taxpayers won’t foot the bill for the project. Companies pay to access the database through an initial $5,000 fee and a per-use fee. However, by law, the SSA can’t begin to develop the verification system until it collects at least 50 percent of program startup costs.
Industry groups say they recognize they’ll need to work with the SSA to get the project moving.
The agency wasn’t initially attuned to the need for digitizing the database, said Heather Hogsett, vice president of technology and risk strategy at BITS, part of the Financial Services Roundtable, a banking and credit card industry trade group. “SSA has a lot of competing priorities, and the industry needed to raise awareness and help them understand why these changes are necessary and should be high on the list,” Hogsett told Bloomberg Law
“The key thing will be to work with the Social Security Administration to make the necessary changes to their systems to allow firms to really check in with their database to make this as close to real-time as possible and make it efficient,” Hogsett said. “It’s a huge problem not just for the industry but also for consumers.”
Digitizing the SSN database also creates an opportunity for banks to streamline future identity verifications.
Consumers open up new financial accounts such as credit cards, student loans, or auto loans every two years on average, according to Eric Woodward, group president of risk solutions at Early Warning Services.
The company is a joint venture by seven of the largest banks, including Bank of America, BB&T, JPMorgan Chase and Wells Fargo, to collaborate in fighting fraud and performing applicant screening services.
“In an ideal space, the collaboration could help lead to creating a very clean database where each account in there, each individual in there, can be reconciled back to the Social Security Administration, with certainty,” Woodward told Bloomberg Law.
That means financial institutions could reduce the number of times they need to query the SSA database if a consumer’s been previously verified.
“We see this as an opportunity for the banking industry to continue collaborating on solutions to fight new fraud types, including synthetic ID,” Woodward said.
To contact the reporter on this story: Lydia Beyoud in Washington at firstname.lastname@example.org
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