Combating Synthetic Identity Fraud

The growth in a new kind of identity theft highlights the need for the federal government to step up and help the private sector verify citizens’ identity, experts and officials said at the AFCEA Federal ID Summit Thursday.

Synthetic identity fraud happens when a genuine social security number is used alongside a false name and date of birth to get credit or some other monetary benefit, Allison Lefrak, an attorney with the Federal Trade Commission's’ Division of Privacy and Identity Protection, told a session on identity theft.

“It’s on the rise,” she said.

The Wall Street Journal reported earlier this year that synthetic ID fraud is one of the fastest growing forms of ID theft in the U.S., and Forbes noted some estimates put the global cost at more than $6 billion annually.

Worse still, Lefrak explained, because fraudsters prefer to use a social security number, or SSN, from someone who has no existing credit record, up to half of the victims are children, according to some estimates.

“Typically, the first time a child will find out about this is ... the first time they apply for credit, like a student loan,” she said.

But why is this even a problem? The federal government keeps records of the name and birth dates of all those to whom they issue SSNs. Why can’t credit issuers and bureaus simply check with the Social Security Administration (SSA) that the name and birthdate they’re given correspond with the person to whom the SSN was issued?

“We have had some discussions with the Social Security Administration,” said Lefrak. “Currently, there’s no process in place for them to do that.”

“The Social Security Administration hasn’t seen that as its job,” explained Jeremy Grant, coordinator of the Better Identity Coalition, an industry group that advocates for federal policies to improve identity security.

But that may be changing. A law passed by Congress in May, the Economic Growth, Regulatory Relief, and Consumer Protection Act, contains a provision requiring the SSA to create a mechanism through which certified financial institutions can check whether the name and birthdate associated with an SSN they’ve been given for a credit application correspond to the real person to whom it was issued.

Lefrak said such a mechanism was “a critical issue that could ease the problem.”

But there’s a catch.

“Congress told the Social Security Administration to do this, but they also told them they had to make the [financial institutions] pay for it and they can’t start work until they’ve got half the funding,” explained Grant. That’s tough, he added, because no one’s really sure how much it will cost.