From the Archives: June 2013

Evolution of Check Fraud 

With so many new and emerging payment methods, it is easy to believe that paper checks will soon disappear. Assuming that the demise of the paper check is imminent is premature, to say the least. Undoubtedly, the volume of checks written has declined, yet credit unions continue to process billions of checks each year.

As long as credit unions allow members to write and receive check payments, the threat of fraud will remain. Since fraudsters tend to follow the “path of least resistance,” as soon as the credit union neglects their check fraud prevention efforts, fraudsters will arrive in force.

Given that check fraud is not going away, how can credit unions ensure that they are able to prevent it? The first step in fighting check fraud is to understand the magnitude of the check fraud losses that your credit union experiences each year. In order to understand the frequency of losses as well as the channels most susceptible to check fraud, if you have not done so already, consider centralizing fraud loss reporting in one area of the credit union.

In addition to understanding how and where check fraud losses may occur, consider the following steps that your credit union can implement with relative ease:

Create an internal negative database – This step can have one of the most significant impacts on your credit union’s ability to prevent check fraud losses. A negative database includes information on previously presented checks that your credit union determined to be fraudulent. Whether you create a negative database on your own, or access a database that other financial institutions populate with their check related losses, develop an approach that allows you to learn from the past. History has a habit of repeating itself, and fraudsters are quite happy to target your credit union for as long as you allow them to do so.

Initial and ongoing fraud prevention training – Your tellers are often your first, and last line of defense in the fight against check fraud. Ensure that new hires and seasoned employees receive extensive training on how to prevent all forms of fraud, including check fraud. The creation of a robust training program that includes actual examples of fraudulent checks can quickly pay for itself. Instances of check fraud often appear in the local news. In addition to reviewing such news stories for information regarding the latest tactics employed by criminals, consider sharing the news clippings in your fraud prevention training classes. Employees must see direct evidence of the threat that check fraud poses to the credit union and its customers. Empowering your tellers to deliver exemplary customer service includes providing them with the training and education to protect customers as well as the credit union from check related fraud losses.  

Think like a criminal – Even when check fraud losses decline, continue to evaluate your credit unions policies and procedures as it relates to fraud prevention and detection. As your credit union releases new services such as remote deposit capture via the phone, consider how cybercriminals might use the new service to facilitate fraud. For example, if a fraudster deposits a counterfeit item via their phone, is it possible for them to take the same item to the branch and deposit it there as well? Better yet, could they deposit multiple fraudulent items at different branches? At a minimum, the cybercriminal will have access to $200 for each deposit - even more if the branch fails to issue an exception hold on one, or more of the fraudulent items.

Establish a culture of “sharing” – Fraudsters do not recognize geographical boundaries and neither should your staff when it comes to sharing fraud related intelligence. Consider designating an executive as the primary point of contact for other financial institutions with respect to the sharing of fraud intelligence. Not all fraud related intelligence is appropriate to share with other institutions; however, with the approval of your credit union’s legal staff, sharing information with other financial institutions can dramatically improve your ability to detect and prevent fraud. To perfect their approach, or until they are caught, fraudsters routinely target different credit unions in the same market. Sharing the latest intelligence with other credit unions in your market and if possible, across the country, strengthens your ability to respond to a range of tactics employed by fraudsters.

Advanced Fraud Solutions’ experience has proven that strength in numbers with credit unions collaborating and sharing “one view” of fraud has a dramatic effect on the ability of fraudsters to inflict losses. Lack of knowledge regarding the legitimacy of a transaction is the primary advantage that fraudsters have over credit unions. We base our approach to fraud prevention on collaboration. We have access to databases that contain 95% of the nation’s account status information, or approximately 427 million account records. Consequently, our fraud prevention products provide credit unions with a cross-institutional, account level view of each check related transaction.

In real time, via the web or as part of an existing teller system, TrueChecks™ identifies counterfeit, NSF, duplicates and closed accounts at the teller line. TrueChecks® Batch provides same-day batch notification to prevent fraud via the ATM, RDC, mobile or in the branch. On average, AFS stops 100,000 items related to counterfeit, NSF, and closed account abuse per day.

Trust is a crucial component underpinning a credit union’s relationship with its members. Members expect their credit unions to quickly, and accurately distinguish between fraudulent and authentic items. Although difficult to quantify, AFS’ solutions also helps improve and maintain the customer’s confidence in their credit union’s ability to monitor and protect their account from fraud and abuse.

Contact your MCUL & Affiliates league representative for more information.


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