Synthetic identity fraud has emerged as a growing concern in the United States, largely fueled by the prevalence of Credit Privacy Numbers (CPNs). Introduced by credit repair companies as a purported means to protect consumers’ privacy, CPNs are essentially stolen or non-issued Social Security numbers, utilized to create synthetic identities. This practice, which originated around 2007, is now rampant in American society and represents a disturbing form of fraudulent behavior that is unique to the U.S. market. The rise of CPNs has not only enabled individuals to hide their poor credit histories but has also provided a convenient avenue for criminals to exploit financial systems, leading to significant economic losses across various industries.
Historically, the concept of a CPN is a rebranding of “File Segregation,” a credit repair tactic popular since the 1990s. This involved the use of alternate identifiers like Employer Identification Numbers (EINs) to create new credit files for individuals who had declared bankruptcy. As CPNs gained popularity, they became associated with fraudulent practices and were marketed as legitimate tools to protect an individual’s privacy. By 2010, CPNs had proliferated online, and by 2015, their usage had exploded, with dubious credit repair companies profiting significantly as they sold CPNs at prices ranging from $79 to $1,500. As demand surged, criminals found these numbers to be an attractive resource for furthering their illicit activities.
The magnitude of synthetic identity fraud has reached staggering proportions, deeply affecting the financial sector. According to estimates, synthetic identity fraud resulted in approximately $2.4 billion in unsecured credit losses in just one year. Major financial agencies have reported that lending exposure to synthetic identities has soared, with losses exceeding $3.2 billion in just the first half of 2024. Not only do these fraudulent activities compromise the integrity of financial institutions, but they have also seeped into other areas, with estimates suggesting that around 5 million bank accounts in the U.S. may be tied to synthetic identities. Projections indicate that losses from synthetic identities could escalate to an alarming $23 billion annually by 2030.
Analyses show a disturbing trend suggesting that the demand for CPNs and synthetic identities is only increasing. Interest in purchasing these numbers has surged dramatically, particularly on dark web forums and social media, indicating that this issue is gaining traction among individuals seeking quick and seemingly legitimate shortcuts for financial gain. As more people, some unknowingly, engage in the use of CPNs to apply for loans, rents, and credit cards, the lines between criminal and civic behavior become increasingly blurred. Interviews with experts reveal that many users often do not grasp the legal implications of their actions, believing their use of CPNs to be harmless.
Moreover, it’s notable that a considerable proportion of synthetic identities are linked to real people who have resorted to using their information, sometimes to escape dire financial situations or hardships. Research indicates that around 70% of synthetic identity cases involve individuals creating new credit profiles using their actual names and dates of birth, often motivated by a combination of desperation and misinformation. This correlation reveals how financial distress can lead even law-abiding citizens toward illegal practices, further complicating the issue of synthetic identity fraud and making it imperative for regulatory bodies to address the root concerns while ensuring consumer education.
In the ongoing battle against synthetic identity fraud, fintech platforms have emerged as both a resource and a target for fraudulent actors exploiting CPNs to manipulate credit systems. Certain financial products marketed by these fintech firms often do not implement stringent identity checks, thereby facilitating the creation and dissemination of synthetic identities. As the profit motive intensifies, there is an urgent need for financial institutions to enhance their verification processes to safeguard against these fraudulent activities. Without significant reforms and a collective effort among financial players, including stringent vetting measures and educational outreach, the cycle of synthetic identity fraud perpetuated by CPNs is likely to continue unabated, leading to sustained financial strain for consumers and businesses alike.