One of the latest trends in fraud is to create fictitious people to take out loans. How can this happen in the age of Big Data, i.e., when large companies know more and more information about everybody? [bold added]
Crooks know that the first application will be rejected, but it will allow the fake identity to get into the system and maybe some business-hungry lender will approve the next application.Synthetic-identity fraud exploits a vulnerability in America’s consumer-credit system. Lenders often consider a loan applicant legitimate if the applicant has a credit report at Equifax Inc., TransUnion or Experian PLC. But a new “credit file”—essentially a precursor to a credit report—often gets created when someone simply applies, even if the loan doesn’t come through.
(WSJ graphic)
Some lenders approve loans after reviewing credit files, which helps turn those files into full credit reports. That’s how a fictitious person, or 300 fictional people, can end up with a credit card.
Three comments:
1) The consumer-credit business is much less secure than other lending. Recently I've helped shepherd two real-estate deals through closure; in both cases the loans were under $500,000, the borrower's equity was 25-50%, the document requests were voluminous (tax returns, W-2's, brokerage statements, and balance sheets with questions about every line item), and numerous phone calls between borrowers and lenders.
2) Financial institutions who make personal loans to fake people deserve the consequences. No bailouts for them!
3) Fake identities are better than stolen identities. At least no consumers were directly harmed.
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