Identity fraud, especially so-called synthetic schemes that use completely or partly made-up identities, is on the rise and hitting banks hard.

In a classic example of synthetic identity fraud, fraudsters create fake IDs to obtain credit cards, diligently pay their bills for years and keep getting the credit limit raised. Once they've reached a certain threshold (say $50,000), they do a "bust out," where they take out a cash advance for $49,000 and skip town. The bank keeps calling and trying to collect, but there's no real person to collect from and the lender ends up writing off the credit loss.

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