Synthetic identity fraud is rising: instead of stealing a full identity, criminals create a new one by mixing real data (like a stolen SSN) with fake details, letting applications pass checks—Equifax says about 95% get through onboarding.
The growing threat
Synthetic identity fraud is the fastest‑growing type of financial fraud. Equifax’s Digital Fraud Trends Report finds that synthetic identities on credit applications have increased 14 percent each year since 2020, nearly 50 percent in four years. Losses are staggering: businesses in the United States are estimated to suffer $20 billion to $40 billion in synthetic ID fraud annually, and those losses jumped 50 percent between 2022 and 2023. Beyond financial damage, institutions endure strained operations, reputational harm and greater regulatory scrutiny. Fraudsters exploit generative AI tools to fabricate bank statements and certificates that appear legitimate. In late 2024, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an alert warning financial institutions about deepfakes and synthetic documents.
The Association of Certified Fraud Examiners (ACFE) highlights that AI accelerates synthetic identity schemes, allowing criminals to create realistic profiles by mixing real consumer data with invented details. Fraudsters build credit by making small payments before “busting out” and maxing out accounts. In one Canadian investigation, dubbed Project Deja Vu, police uncovered a ring that generated more than 680 synthetic identities to attack banks, causing roughly $4 million in losses.
How it affects borrowers
For lenders, synthetic identities often default within six to nine months and are up to five times more likely to become delinquent than legitimate accounts. Those defaults erode trust in borrower data, leading to stricter underwriting and higher interest rates for everyone. For consumers, the danger lies in false denials or, worse, being tied to debts you never incurred. A fraudster may use your SSN to build a synthetic profile that runs up debt and then disappears. As a result, your legitimate loan applications may be flagged, or collections agencies may contact you about accounts you never opened.
Protecting yourself and choosing the right lenders
- Check your credit reports regularly. Obtain free reports from major credit bureaus and look for unfamiliar accounts or inquiries. A sudden drop in your credit score or mail addressed to unknown names at your address can signal that your SSN is being misused.
- Freeze your credit. Placing a security freeze prevents new accounts from being opened in your name without your authorisation.
- Use multi‑factor authentication. Equifax recommends that lenders and consumers adopt multi‑factor verification, linking mobile numbers and devices to ensure that the applicant is real.
- Share information carefully. Never provide your SSN or government ID over unsecured channels. Beware of phishing emails and phone calls requesting personal data.
- Choose lenders with robust verification. Ask prospective lenders about their fraud detection tools. Leading institutions use machine‑learning synthetic identity alerts during account origination to flag suspicious applications.
- Respond quickly to suspected fraud. If you receive a notice from a lender about an account you don’t recognise, dispute it immediately and file a police report. Contact the credit bureaus to place fraud alerts on your file.
Advocacy and the road ahead
Synthetic identity fraud is not a question of if but when Policymakers and regulators are stepping up: FinCEN’s alerts signal heightened awareness, and new regulations may require banks to share data and coordinate more closely. Consumers should support efforts to strengthen identity verification and advocate for comprehensive privacy laws that limit the sale and resale of personal data. At the same time, technology can be a powerful ally. Machine‑learning models can scan applications for patterns that indicate synthetic behaviour, and consolidating identity checks into a single API reduces blind spots.
By remaining vigilant, verifying your identity and working with trustworthy lenders, you can reduce the risk of being caught up in synthetic identity fraud. Borrowers deserve both convenience and security. As digital lending evolves, your awareness and proactive steps are your best defence.
