MADISON, Wis.—Keeping ahead of the complex array of constantly changing risks is challenging for CUs, says CUNA Mutual Group, which outlined the latest fraud trends that should be on credit unions’ radar.
“When risk management is effective, you can avoid being blindsided and protect your credit union’s reputation,” said Ken Otsuka, senior risk management consultant at CUNA Mutual Group, during the company’s 2019 online Discovery Conference.
Otsuka said that from a payments and deposits standpoint, CUs should be most concerned about social engineering.
“The focus has to be on account takeovers and how we authenticate our members, and secondly, social engineering scams that are directed towards CUs—particularly phishing scams. Because they create the largest losses for credit unions,” he said.
New Account Losses
New account fraud losses are increasing through the online channel, CUNA Mutual Group noted.
Fraudsters who open accounts at credit unions typically use stolen identities. In addition, these fraudsters make fraudulent deposits of checks or ACH debits and withdraw the funds before the items are returned unpaid to the credit union.
When opening new accounts, whether online or in person, credit unions should emphasize the importance of member identification, the company said, advising CUs not to place too much reliance on government-issued photo IDs, since they are easily counterfeited.
Consider ID Verification Solution
Credit unions were urged to consider the use of an identity verification solution to verify the membership applicants’ identity—especially with potentially high-risk accounts. Many credit unions have experienced success in preventing fraudulent accounts from being opened by using a skip tracing solution to screen high-risk accounts, the company shared.
Fraud Losses stemming from identity theft-related loan fraud tend to be more severe in dollar amount than the losses associated with new account fraud. Once a fraudster opens an account, usually through the online channel, they immediately apply for loans, including unsecured loans, credit cards, and vehicle loans. These losses are increasing as more credit unions accept loan applications through the online channel. Loan staff who process loan applications should be trained on how to spot fraudulent applications, CUNA Mutual said.
What to Watch For
Fraudsters often use stolen identities to impersonate members by enrolling member accounts for online banking. Once enrolled, they change the member’s contact info through online banking. Then, once logged into the account, fraudsters:
- Take advances against member line-of-credit loans, such as HELOCs
- Request wire transfers, use bill pay or the external transfer service to transfer funds out of the member’s account
- Use the external transfer service to initiate ACH debits to pull funds from external accounts for deposit to the member’s account and then transfer the funds out of the member’s account before the ACH debit entries are returned
- View canceled checks, including HELOC checks, to manufacture counterfeit checks