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Take A Second: CU Legal Insights

"Take A Second: CU Legal Insights" offers weekly updates and legal analysis tailored for credit unions, helping navigate regulatory landscapes and stay informed on industry trends.

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Fraud: Our Least Favorite Topic of Conversation

12/10/2024

This week, we are taking a second to dig into the topic of fraud. Over the past couple months, I’ve attended a number of different sessions and events addressing this top-of-mind topic and I felt it would be beneficial to share a little bit of what I’ve learned with all of you! 

As we all know, fraud continues to keep credit union leaders up at night. Fraudsters keep finding ways to attack and, as a result, the fraud costs continue to rise despite our best efforts. So, let’s dive right in and talk about some fraud trends we’re seeing and ... surprise, surprise, they haven’t changed much in recent years.  

Now Trending: Fraud

Fraud continues to be a trending topic amongst credit union leaders across the movement: how to combat it, what is the newest type of fraud they’re seeing and how the losses continue to rise. New technology has provided additional resources to combat fraud, but as we know, this also has provided fraudsters with new tactics and tools. 

The top three trending categories of fraud are (1) Employee/Director Dishonesty, (2) Fraud Transfer Losses and (3) Forgery/Fraudulent Deposits. Nothing new in the grand scheme of things yet the losses continue to grow year after year.  

Schemes to Be Aware of

There are many different fraud schemes that we see on a frequent basis, but I chose to highlight two that I have specifically heard about through various recent presentations. One pertaining to fraudulent endorsement and deposit of checks and one pertaining to ITMs. These are just two examples of the fraud schemes that are plaguing the financial services industry but there are countless others. Taking the time to stay up on the latest fraud trends is imperative to minimizing losses. 

One of the fraud schemes that I have been hearing about more frequently deals with fraudulent U.S. Treasury checks. This may be because the impacted institutions have suffered losses well into the six-figure range. What is happening in these scenarios, if you are not familiar, is that fraudsters are recruiting individuals to open new accounts at financial institutions in the name of the payee on the U.S. Treasury check or they are altering/washing the check to replace it with the name of the individual who was recruited to be the money mule. Once the check is deposited, the fraudsters withdraw/transfer out all of the funds. These funds are subject to reclamation by the U.S. Treasury if they are not paid to the proper individual, and since the money is already gone, the credit union is left with a large loss. 

 The other scheme is ITM fraud. This type of fraud typically happens during non-business hours and the fraudsters are using the self-service mode on the ITMs to access and withdraw sums of money from members’ accounts. Losses of this type were in the six figures, as well, but there have been some institutions who have suffered seven-figure losses. Typically, the fraudsters here are using either skimmers that they have imbedded in the ITM, or counterfeit cards or account numbers coupled with a member’s social security number or date of birth to access the member’s account. The best ways to combat this type of fraud are to set reasonable withdrawal limits, implement one-time passcodes to log-in and/or limit self-service options on the ITMs to business hours.  

How do We Combat Fraud? 

I wish I had a crystal ball that had all the answers here but unfortunately, I do not. What I can say is that it is extremely beneficial to invest in technology to help detect fraud early on. Continued education of your team members and your credit union members is also key. If you haven’t already, I would recommend that you take a look at some of the collateral that our team at MCUL has created as part of the Try a Credit Union awareness campaign. These fun, short videos are the perfect thing to share on your website and socials to provide education, such as “Never click on sus links.” You can find this video and others here. 

Education and technology seem to currently be the two key tools that credit union leaders can use to prevent or, at the very least, minimize the impact of fraud on your institution. Training courses, like the one that League InfoSight held earlier this year, are great educational tools for you and your staff to stay on top of this issue. League InfoSight’s Fraud Symposium, which took place in August, was jam-packed with extremely beneficial information on fraud. Michigan credit unions can still access this content on the League InfoSight website. This training was packed with tips on how to combat fraud and highlighted the various new schemes that experts are seeing in the field; it also provided regulator perspectives. If you and/or your team were not able to attend that training, I highly recommend you go to the website and watch the recordings of those sessions.  

Key Takeaways? 

Fraud is going to continue to keep all of us up at night until legislative action is taken that can stop the fraudsters in their tracks or provide our institutions with the requisite relief when fraud does occur. You can rest assured that our advocacy team is working at both the state and federal level to address this issue in any way that we can. In the meantime, spend additional time educating and training your members and your team on fraud trends, specifically ways to identify fraud as it’s happening rather than after the fact. Finally, consider investing in technology that can assist you and your team in identifying fraud quickly. 

To sum it up...

There is no silver bullet for fraud. We as an industry will have to continue to weather the storm and work to stay one step ahead of the fraudsters as they continue to innovate.  

As always, this article is intended for general information only and does not constitute legal advice. If you have any questions about these topics and/or the possible implications, you should contact your attorney for advice. 

Hope to see you next time, when we take a second to discuss another legal topic in the financial services industry! 



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