Anti-Fraud Deposit Tool Becomes Business Booster

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Credit Union: Credit Union 1

Nominated By: CUNA Mutual Group

Nominated For: Reversing Loss Situation

Few financial institutions can turn a fraud deposit loss problem into a membership development tool. But Credit Union 1, Rantoul, Ill., was able to eliminate its losses while turning its more taxing members into being better savers and borrowers.

In 1998, the $321-million credit union found its deposit loss problem getting out of hand, says Lenore Hansen, Credit Union 1's assistant vice president of loss prevention. The problem was so bad, in fact, that CUNA Mutual Group, which covered the losses with its Fraudulent Deposit- Forgery or Alterations bond, planned to raise the credit union's deductible from $2,000 to $5,000, she says.

"We had to stop the losses to maintain the insurance rate and protect the credit union," recalls Donna Linn, Credit Union 1's senior vice president of loan prevention and recovery and general counsel.

After researching the problem, which had grown to 26 claims worth $65,391 in 1998, Hansen discovered the losses were being caused by existing members with financial problems and-or poor credit.

"We needed a way to service those members without compromising the credit union," says Hansen.

In conjunction with another manager, Hansen developed a probationary membership category called Limited Service. Under this moniker, Credit Union 1 extended some but not all services based on the member's credit history and current credit rating.

Limited Service members could open a checking account, but had no ATM privileges, says Hansen. In addition, a hold of nine calendar days was put on all check deposits pending the clearance. That nine-day hold was critical because that's how much of the fraud was being perpetrated, she said.

The Limited Service probation period lasted a maximum of one year. Members could broaden the services available to them by signing up for direct deposit, said Hansen. Once members proved themselves, restrictions gradually were lifted and service privileges restored.

Surprisingly, Credit Union 1 received more resistance to the program from staff than from members, says Hansen. "Tellers were afraid they'd have to deal with angry or embarrassed members," she says.

Line staff were trained on ways to explain the conditions to affected members. Not surprisingly, many of those members had been denied service at other financial institutions and were pleased at being giving a second chance.

Since 1998, Credit Union 1 has rapidly progressed in addressing its fraudulent deposit problem. By 1999, loss claims dropped from 26 to 18 and the amount claimed from $65,391 to $54,138. In 2000, those figures fell to 12 claims totaling $36,284 and 2001 saw only eight claims for an aggregate $29,168, Hansen says.

In 2002, there was only one claim for $2,294. Thus far in 2003, there have been no claims, she said.

The program has been extended to include college students with no credit history and that group is encouraged to use the services to build a credit profile, said Hansen. Currently, 4,171 of the credit union1s 103,355 members are granted Limited Service status.

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