How Synthetic Identities and AI Are Driving $2.4 Billion in US Lenders’ Fraud Losses
Synthetic Identities Merge Real and Fabricated Data
Synthetic identity fraud occurs when a real person’s information is stolen and merged with falsified personal information to establish a new identity. Criminals use exposed personal information from data breaches and AI to construct convincing synthetic identities and fabricated documents. Once accepted, a synthetic identity can be used across several services. A single identity might be used to obtain a buy now, pay later loan, open a mobile phone account with a handset lease, secure a credit card and create an online betting account. This activity creates risks beyond the initial application. A fabricated identity that slips past onboarding controls can remain undetected as criminals exploit accounts and business processes.
AI Enables Convincing Documents and Onboarding Evasion
US lenders had an estimated $2.4 billion in exposure to synthetic identity fraud risk at the end of June 2026. Auto lending accounted for the largest portion, at $1.5 billion. These estimates measure potential lender losses, instead of losses already incurred. Synthetic identity fraud presents unique challenges because it can conceal risk behind seemingly legitimate consumer profiles, helping fraudsters evade traditional detection methods. TransUnion launched synthetic identity fraud and credit washing risk scores designed to help lenders identify potentially fraudulent applications and provide explanations for adverse credit decisions. The new TransUnion scores are designed for use in credit decisions governed by the Fair Credit Reporting Act (FCRA), providing reason codes lenders can use when declining applications.
TransUnion and Oscilar Introduce Adverse-Actionable Scoring Tools
Risk management platform Oscilar is the first to integrate TransUnion’s new risk scores. Synthetic identity fraud, which blends real and fabricated personal information to create identities that can be used to obtain credit or financial services, is an increasing risk. According to TransUnion research, lender exposure to synthetic identity fraud was estimated at $2.4 billion as of June 2026. TransUnion said the new scores aim to help identify risks linked to both synthetic identities and credit washing, a practice in which negative credit information is suppressed or removed from a consumer’s credit record. The company cited its analysis showing that consumers whose charge-offs were suppressed through credit washing were 3.5 times more likely to charge off a newly opened account within a year. Among consumers classified as super prime, the likelihood was reported to be ten times higher. By bringing advanced fraud intelligence into explainable, FCRA-governed decisioning, we’re helping organizations uncover threats that might otherwise go undetected, make more confident decisions, and mitigate potential financial losses, James Garvert, executive vice president of global fraud at TransUnion, said.
Static Checks Fail Against Dynamic Spoofing
Traditional verification methods struggle because they rely on static identity checks that assume any individual signal can be spoofed. The first generation of digital identity was document-centric and event-based, verifying a person before opening an account or authenticating at login. However, the second generation involved additional signals and increased automation while still depending heavily on static ideas of identity and human distinction.
This reliance on episodic scoring fails in an era where humans and machines blur in digital channels. Criminals use exposed personal information from data breaches to construct convincing synthetic identities that pass these initial static checks. Once a fabricated identity slips past onboarding controls, it can remain undetected as criminals exploit accounts and business processes throughout the customer relationship.
Scammers can manipulate legitimate customers into authorizing fraudulent activity after the account is established. Eighty-one percent of suspected digital fraud in the network during the first half of 2026 occurred during account logins and financial transactions, highlighting risks that persist well beyond the initial application. These exchanges often take place through communication networks outside a business’s direct control, shaping customer behavior before fraud checks have an opportunity to intervene.
Sources
- Synthetic identities leave US lenders with $2.4 billion in fraud exposure – Help Net Security
- TransUnion adds synthetic identity fraud, credit washing risk scores | Biometric Update
- TransUnion Debuts New Scoring Capability to Combat Fraud | PYMNTS.com
Photo: path digital / Unsplash (Unsplash License)
