COSTA MESA, Calif. -

Experian and CEB TowerGroup acknowledged how auto finance providers and other financial institutions are facing heavy business pressures to reach new demographics often riddled with thin credit files, while also improving the customer experience across all channels and processes.

According to experts from those firms, that pressure also is opening finance companies up to a complicated and growing type of fraud — synthetic identities — which appear to have been a part of $3 billion in losses in 2015 throughout all areas of credit, including auto.

“The problem in the last couple of years has really exploded because now there are mechanisms to create mass synthetic identities,” Experian senior business consultant Keir Breitenfeld told SubPrime Auto Finance News during a recent phone conversation.

“The model has exploded and growing at a rate of two and a half time years over year,” Breitenfeld continued.

So what are synthetic identities? Breitenfeld explained that fraudsters cobble together names, Social Security numbers, birth dates and addresses from a wide array of sources and create what seems like a person. At least so it would appear that way to the financial world.

“Synthetic identity passes the confidence check that identities involved in identity theft would not,” he said, while adding that various consumer database breaches during the past few years have given fraudsters plenty of raw material in which to create these identities.

“They have now established a digital footprint across various types of data houses. They may have credit history. They may have documentary evidence. They may show up in a public records database. They’ve created and cultivated it over a period of time to ultimately be used to perpetrate fraud,” Breitenfeld continued.

And as a result, Breitenfeld emphasized that finance companies are susceptible to fraud via synthetic identities during the origination process.

Before finance company leaders throw up their hands in frustration, Experian and CEB TowerGroup compiled a white paper with a quartet of recommendations that included:

1. Assess synthetic identity exposure to answer questions around current and potential losses across a portfolio or portfolios.

2. Implement specific synthetic identity decisioning strategies and workflows designed to initially segment potential synthetic identities for more targeted treatment across the customer lifecycle.

3. Capture and aggregate quality customer data across the customer lifecycle and tie in with authentication methods to mitigate risk across those transactions while adding trust.

4. Conduct data furnishing quality assurance reviews and create feedback loops to ensure your institution is not contributing to synthetic identity creation.

If left unchecked, Experian and CEB TowerGroup asserted that financial institutions will continue to see fraud losses mount as these fake identities are used to withdraw maximum amounts of credit and “bust out” their available balances — or the vehicle attached to the installment contract — before they disappear.

The firms insisted it is critical to disseminate updated information about the threat, the scope of the problem and the methods to defeat it across all markets.

“This is leading edge of what will be significant losses going forward,” Breitenfeld said. “It requires an end-to-end lifecycle program to focus on the problem.”

To download the complete analysis from Experian and CEB TowerGroup, go to this website that also has links to more resources involving e-commerce fraud and locations where it happens most often.