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CUs Must Prepare for Wave of Post-Pandemic Synthetic Fraud

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man with question mark as head, hacker Source: Shutterstock

One residual benefit of the pandemic has been a reduction in instances of synthetic identity fraud – a criminal strategy that involves cobbling together real and fake personal information to open fraudulent accounts or lines of credit with the goal of stealing or moving money. But the financial institutions that are often targeted by synthetic fraud perpetrators shouldn’t relax yet, because it’s expected to surge when payments put off by pandemic loan forbearance programs start to come due.

That’s according to new research from the Chicago-based credit reporting agency TransUnion and Boston-based research firm Aite Group. As of the third quarter of 2020 (the latest data available), outstanding synthetic fraud balances for auto, credit card, retail credit card and personal loans totaled $855 million, a drop from the $1.05 billion reported two years prior, according to TransUnion’s analysis. In addition, TransUnion found new auto loan and credit card accounts tied to synthetic fraudsters declined by 23% and 32%, respectively, from Q3 2019 to Q3 2020 – down to their lowest points since the company began tracking them in 2016.

The decline can be attributed to several factors, explained Lee Cookman, TransUnion’s director of product strategy of global fraud and identity solutions. First, because the pandemic led to the implementation of loan forbearance programs, there were fewer sales of credit profile numbers (CPNs) – alternatives to Social Security numbers sold by credit repair companies to people who are unable to obtain access to credit through traditional means, such as individuals without a government-issued ID, or who have poor credit or a criminal record. Sellers tout CPNs as easy paths to loans for struggling consumers, but because they allow prospective borrowers to hide their true identities, they’re in fact the basis of a common type of synthetic fraud.

The slowdown also stemmed from financial institutions’ growing use of solutions designed to thwart synthetic fraud, as well as the fact that fraudsters shifted their focus in 2020, taking advantage of new opportunities such as the Paycheck Protection Program to exploit consumers, according to Cookman.

Once forbearance programs reach their end, however, desperation to pay bills will increase among consumers, leading to a likely uptick in synthetic fraud. Aite Group estimated that synthetic fraud losses for unsecured U.S. credit products such as auto, credit card, retail credit card and personal loans will grow from a total of $1.8 billion in 2020 to $2.43 billion in 2023.

“We believe this slowdown [in synthetic fraud] was compounded by fraudsters who went elsewhere and could be lying in wait to take advantage of pandemic loan forbearance programs that may not have come due yet,” Shai Cohen, SVP of Global Fraud Solutions at TransUnion, said. “Once synthetic fraud reemerges, which we think it will, companies must be ready.”

Synthetic fraud is particularly concerning for credit unions and other financial institutions because it’s difficult to detect, Aite Group Research Director Julie Conroy pointed out. Many synthetic identities resemble identities of people without a credit history or who are new to the country, and in many cases synthetic fraudsters “play the long game,” building up credit profiles and nurturing fake identities over periods of up to five years before maxing out their credit and vanishing. And out of 46 North American fraud executives Aite Group surveyed in September 2020 for its recent report, “Synthetic Identity Fraud: Diabolical Charge-Offs on the Rise,” 72% said they believe synthetic identities are much more challenging to identify and address than identity theft.

“It’s hard for financial institutions to get their hands around it,” Conroy said. “There are some opportunistic fraudsters who are brought to it by desperate measure, but there’s also a very sophisticated organized crime component, so they’re having to fight the battle on multiple fronts.”

Conroy noted that as a best practice, financial institutions should strive to stop synthetic fraud “at the front door” by identifying patterns that are indicative of synthetic fraud during the onboarding of new customers or members. While some institutions may not have the technology framework in place to detect synthetic fraud, the good news is that many vendors are offering “one stop shop,” multi-pronged solutions that are necessary to help institutions identify potential synthetic fraud, she noted.

The Aite Group report also recommended institutions segment their remediation approach for synthetic fraud once it’s detected, since synthetic fraudsters are often able to bypass traditional, stepped-up authentication processes. In addition, since many synthetic identities are written off as credit losses, Aite Group suggested institutions analyze their existing credit write-offs for potential synthetic fraud.

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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