synthetic identity fraud

From Invisible to Visible: How Car Dealerships Can Unmask Synthetic Identity Fraud

In recent years, synthetic identity fraud has overtaken credit card fraud and identity theft to become the fastest-growing kind of fraud globally. According to Aura, synthetic identity fraud is now the fastest-growing type of financial crime in the United States. The Federal Trade Commission estimates that synthetic identity fraud now accounts for 80-85% of all identity fraud. Why the exponential growth? Committing fraud with a synthetic identity is simple, inexpensive, and carries a low risk of being caught. Unlike conventional fraud, this invisible enemy is complex and frequently remains unnoticed, creating a distinct set of problems for car dealerships.This blog aims to demystify the nature of synthetic identity fraud and provide actionable insights for proactive protection with identity verification.

Understanding Synthetic Identities


How Synthetic Identity Fraud Differs From Other Types of Fraud

What sets synthetic identity fraud apart from other types of fraud is its inherent complexity and the difficulty in detection. Identities are not stolen, they are created. Traditional fraud often involves stealing an existing person’s identity. In contrast, synthetic identity fraud involves creating a new, fake identity, sometimes using a combination of real and fake information. This makes it incredibly challenging for standard verification systems to detect and flag these identities as fake.

Types of Synthetic Fraud

There are generally two types of synthetic identity fraud: “manipulated” and “manufactured.” In manipulated fraud, genuine personal identifiable information (PII) is modified to construct an identity, or a mix of real and fake elements are combined to form the identity. Manufactured fraud involves creating a completely new, fictitious identity. Each type has its own set of challenges for detection and prevention. Manipulated fraud often involves fewer red flags, making it particularly insidious.

An Example of Synthetic Identity

Imagine a fraudster combining a real Social Security number with a fake name and fake DOB. This new “person” can then apply for credit, make purchases, and even commit crimes, all under the radar. This is not just a hypothetical scenario; it’s happening every day, costing dealerships millions. The fraudster may even build a credit history over time, making the synthetic identity appear even more legitimate.

Why They Are Hard to Detect

By combining real and fake information, it becomes much more difficult to identify a fraudster using a synthetic identity. A real person does not exist. The real challenge lies in the fact that these synthetic identities often go unnoticed until it’s too late. They can pass through unsophisticated fraud prevention tactics, making them particularly dangerous. The complexity of these identities often involves multiple layers of deception, adding another layer of detection complexity.

Why Dealers Are Vulnerable

It is common for car dealerships to more focused on compliance than prevention – making them susceptible to synthetic identity fraud. Additionally, sales teams are in the business of selling cars – and most likely do not have the necessary experience and expertise to identify and adapt to rapidly changing fraud trends. The bad guys know this. They also know that most fraud investigations occur after the fraud has been committed, not before, so the chance of getting caught is low. Other reasons why dealerships can be vulnerable:

  • High-Value Transactions

    Vehicles are high-value items, and financing options can involve significant sums of money. Fraudsters are drawn to these opportunities because they can potentially gain access to large amounts of credit.

  • Reliance on Traditional Verification Methods

    KYC non-compliance, over reliance on identity snapshots and the less than advanced identity verification strategies leaves dealers exposed to the invisible threat. Many dealerships still rely on outdated verification methods like manual identity checks, which are not equipped to detect the sophisticated techniques used in synthetic identity fraud.

  • Volume of Transactions

    Dealerships are particularly vulnerable during high-sales seasons and promotional events, where the volume of transactions can make it easier for fraudsters to slip through the cracks.

The Common Warning Signs of Synthetic Identity Fraud

Risk Factor #1: Incomplete or Inconsistent Personal Information

Be wary of applications where the personal information doesn’t add up. Suspicious mailing address. They will have no parents, no family, no friends. They can’t provide a utility bill. Missing or inconsistent information should be a cause for concern.

Risk Factor #2: Suspicious Employment or Income Information

False statements on loan applications, like faking employment details or altering incomes, can have significant impacts on originating dealers. On average, dealerships can expect one fraudulent loan out of every 200 loan applications submitted to a lender. On average, even the astute dealership will still receive one fraudulent paystub out of every 12 paystubs submitted by an applicant. If the employment details or income seem too good to be true, they probably are. it’s crucial to go beyond surface-level checks.

Risk Factor #3: Credit Report Discrepancies

Limited Credit History

A “thin credit file” can be a red flag, especially for older applicants. This warrants extra caution. Scammers usually include just enough details in a synthetic identity to bypass standard know-your-customer (KYC) procedures, while real individuals usually have more intricate and diverse digital histories. Limited credit history often means the identity is either new or not well-established, both of which are risk factors. Always scrutinize credit reports for inconsistencies and sudden changes.

Anomalies & Inconsistencies

A rapid rise in FICO score or multiple lines of credit can signify synthetic identity fraud. Look out for unusual transaction patterns, such as paying off loans in a short time frame or making large purchases without any previous credit history. Or multiple recent credit inquiries, which could mean indicate the the fraudster is attempting to quickly build credit. These are often signs of a fraudster testing the system before making a larger fraudulent transaction. Like a new vehicle.

Detection and Protection Strategies

In the fight against synthetic identity fraud, a multi-layered approach is crucial. Dealerships must embrace advanced prevention strategies that go beyond traditional methods of identity verification. Here are some key elements that should be part of your comprehensive fraud prevention strategy:

1. Embrace Technology

Identity Document Authentication

The first line of defense in any identity verification process should be robust document authentication. Scammers are unlikely to possess a valid ID that aligns with the synthetic identity. Unlike basic ID scanners, Identity Document Authentication solutions forensically authenticate government-issued IDs in real-time. These advanced systems can catch expired, stolen, forged, and altered IDs. While a synthetic identity blending a real SSN with false information may evade digital databases, it’s much less likely to pass a document inspection.

Identity Verification (Database Cross-Matching)

Once the document is authenticated, the next step is to verify the person’s true identity. Identity Verification solutions are designed to do just that by detecting synthetic and true name fraud red flags. These solutions work by cross-matching customer-provided information against hundreds of databases, including government agencies, public utilities, and cell phone carriers, to verify the customer’s Personal Identifiable Information (PII). Frequent changes in phone numbers or addresses can be a sign of synthetic identity fraud. At the risk of stating the obvious, no identity history is a serious red flag indicator.

Multi-Factor Authentications

The final layer in a comprehensive fraud prevention strategy is establishing “proof of presence.” Traditional knowledge-based authentication methods are becoming increasingly unreliable due to the wealth of information available online. Proof-of-Presence solutions use multi-factor authentications (MFA) to confirm that the person engaging in the transaction is indeed who they claim to be.

2. Credit First Selling

Identity verification solutions will not flag people with ‘thin credit’ or nonexistent credit histories because they have never appeared anywhere else. Adopting a credit first approach can help catch what these solutions miss. This involves running a credit check to vet the customers credit worthiness before proceeding with any vehicle negotiation or transaction. Always scrutinize credit reports for inconsistencies and sudden changes. For example, a mismatch between the account holder’s age and duration of their credit history. This approach can also improve the overall customer experience by speeding up the sales process for legitimate buyers.

3. Employment & Income Due Diligence

Suspicious documentation, including forged employment verification letters, is becoming far more prevalent and a possible red flag for synthetic identity related fraud. Thoroughly verifying employment and income information adds an extra layer of security. This involves not just checking the documents but also verifying the information with employers and other institutions. Always take the time to confirm the income makes sense for what you know about the applicant. And always use multiple methods of verification to ensure the information is accurate.


Synthetic identity fraud poses a significant and growing threat to car dealerships. The cost of ignoring these red flags can be devastating, both financially and reputationally. However, by understanding the nature of this fraud and implementing a multi-layered prevention strategy, dealerships can significantly mitigate their risks. The time to act is now. Don’t become another statistic; protect your business today.

About The Author
Pete brings 40+ years of experience in automotive finance and technology as Founder and CEO of eLEND Solutions™, an automotive FinTech company providing a middleware solution designed to power transactional digital retailing buying experiences. The platform specializes in hybrid credit report, identity verification, and ‘pre-desking’ solutions, accelerating end-to-end purchase experiences - helping dealers sell more cars! Faster! 

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