Heartland CUs Breathe Easier After Arrests

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Before the caller had even finished her sentence, the member service rep at Greater Iowa CU was referring her to the state attorney general's office. Sadly, it was yet another consumer who had fallen for the bogus "Heartland Credit Union" newspaper ad, a scheme originating in Canada that allegedly has swindled innocent people in Canada, England and 23 U.S. states.

"Our call center has definitely taken a number of these calls from consumers in distress," said Sara Tatchel, marketing assistant at GICU. The caller in this case turned to Greater Iowa because it merged with Heartland Credit Union in Denison late in 2003. GICU kept the Denison location, which is still listed in some directories by the Heartland name.

It's a name that is shared by four legitimate credit unions in the U.S., as well as a Heartland Employees, Heartland Area and two Heartland Community credit unions, but it's also one of many names used in phony newspaper ads offering financing in exchange for fees and deposits (see related story, page 1).

But for the $104-million credit union in Wisconsin, it went beyond usurping the name. "It wasn't just our name, they even used our logo," said Robin Marohn, vp-marketing at the Madison, Wis.-based credit union. "They stole our logo from the website and then used it in their ads and on the so-called 'loan papers,' they used to scam people out of their heard-earned money. That was hard to take."

But even harder to hear were the phone calls from the victims, trying to figure out why they hadn't gotten the money they'd been promised.

"There was a stretch of two to three weeks where we were getting calls two or three times a day from consumers and reporters," Marohn related. "[Consumers] would find us on the Internet and call us trying to get information on their loans. We'd send them straight to their attorney general's office and the police. But we also got calls from people who were suspicious, and we were able to help keep them from losing their money. One woman called when her husband said he was wiring money to get the loan, and she decided something didn't sound right about that and started checking things out. She found us on the Internet and called us. She immediately got off the phone so she could go tell her husband not to send the money."

The Good News

The good news, he said, is none of the CU's members appear to have fallen for the scam. "The ads weren't running in our area, so our members probably wouldn't have seen it," Marohn explained. "There really hasn't been any damage to our reputation because for whatever reason the scam never got here. It might have been different if the ads had been running here."

The recent arrest of two suspects should make a dent in the problem, but Barry Elliott, detective staff sergeant with the Ontario Provincial Police and coordinator of the Canadian telemarketing fraud task force called Phone Busters, warned that there may be other suspects at large.

"It's taken us years to get to this point, but we're starting to have a real impact," Elliot said. "We're starting to see a decline in the number of U.S. victims. A number of [suspects] have been extradited to America, and that makes a big difference too, because they get some really good time then. In the U.S. they're getting seven years for this, whereas if we kept them in Canada they wouldn't get seven days."

The Hard Part

The toughest part in tracking the scammers down is that they are entirely mobile. "They're using cell phones, which means they can do this out of a car if they want to," Elliott offered. "The phone numbers and addresses are completely meaningless."

And business was booming. "There is more money to be made in telemarketing scams than in drug sales," Elliott advised. "These people are armed and dangerous. There have been a number of homicides associated with this. This is very serious stuff."

The perpetrators have chosen their marks wisely, targeting people who are most in need of credit and have been turned down by legitimate lenders-often the same low-income and underserved market to which NCUA encourages credit unions to reach out.

"They're targeting the American poor because the American dollar is worth more than the Canadian dollar, the market is much bigger and because crossing International borders muddies investigations," Elliott noted, adding the British market, which is twice the size of Canada's, has been targeted for the same reasons.

Cracking down on the scam has proven problematic not only because it's hard to track down the perpetrators-sometimes, it's just as hard to find the victims.

"These people are often somewhat transient themselves and don't always leave forwarding addresses," Elliot offered. "We've lost cases because we couldn't come up with enough victims."

And the number of victims is key. "When you look at the totality of dollars lost, it's huge, but when you look at each victim individually, its tiny," said Vince Wagner, risk management specialist with CUNA Mutual Group. "While $2,000 is a lot of money to the person who lost it, it's just not big enough to command the kind of attention and resources it takes to shut down this kind of scam. It's an easy scam to perpetrate; it's a difficult scam to shut down."

CUNA's Eric Richard agreed. "You're going to dedicate your prosecutorial resources to bigger losses, the Enrons and Tycos of the world," he suggested. "I'm afraid $500 losses just don't pack the same punch."

Often the first authorities involved when suspicious would-be credit union ads crop up are the state financial regulators, because they are called upon to confirm whether the credit union really exists in the state where the ad is being run.

"Regulators and leagues have worked hard to educate newspapers about the scam so that they can spot these bogus ads before they publish them," said NASCUS' Brian Knight.

But such education efforts can have the unintended consequence of making legitimate credit unions look suspicious.

"We won't want to create a new problem-in the form of newspapers not wanting to take ads from legitimate credit unions-in trying to solve the old problem," Knight commented. "We don't want to make people suspicious of credit unions or make them associate fraud with credit unions."

Mission: Impossible?

It's impossible to calculate just how much money has been lost to this scam, not only because of the ever-changing locations of the ads, the mobility and number of perpetrators and even the transient nature of some of the victims-but also because in many cases, it's not simply a matter of the money stolen in the initial fraud.

"It's a double whammy because the victims have turned over a lot of private information to these people in order to 'apply' for the loan," Elliott explained. "They've just opened themselves up to identity theft, as well, so for many of them, that initial loss is only the beginning."

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