How Patelco Has Cut New Account Fraud Attempts

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It takes only three seconds for Patelco Credit Union to notice potential identity fraud in new account applications.

The $3.5-billion CU has recently started using an identity validation system to instantly check the address provided on a new account application against the applicant's address on credit reports, according to Erin Morasch, internal auditor at Patelco.

Patelco uses eFunds Corp.'s ChexSystems' identity screening tool for new account openings-whether they originate from the branch or from the Internet.

"ChexSystems was built to identify good new members and bad new members, but it wasn't developed to figure out if the bad are impersonating the good," said Morasch. "We worked with eFunds and found that the common denominator in theft at new accounts is that the address given by the victim is different from the address given by the perpetrator."

Patelco's customized solution compares addresses during the initial automatic three-second screening with eFunds and the credit bureau. "If there's a discrepancy, we're going to fire a response back to the new account people because the discrepancy can be an indicator of fraud."

But the approach isn't bullet-proof, according to Rahul Gupta, senior vice president and division executive, eFunds, Scottsdale, Ariz. "The downside is the large number of false positives results that will be generated because of valid new movers."

Identify theft is the "crime du jour," and the nation's tenth-largest credit union is paying special attention as it continues to grow by leaps and bounds, said Morasch.

"Fraudsters are learning that the fastest way to make money is to take over another consumer's identity with good credit," added Gupta.

The 205,000-member Patelco CU opens between 3,000 and 4,000 new accounts every month, Morasch continued. "Business-wise, we need to offer services to as many people as possible and offset our risk when we open accounts."

And when a new account is opened under a fraudulent identity, Patelco could lose big, he added.

"Identity theft is a small percentage of our total loss, but when we do lose on identity theft the losses are large," Morasch continued.

Patelco fights hundreds of identity theft attempts every year, but members are victimized fewer than 10 times per year, he said. Morasch has seen individual losses of up to about $35,000, he said.

Last October, Patelco started using its existing automated decisioning platform for new Internet accounts to verify new accounts at all 36 branches as well.

"Prior to automating the decision-making process, employees had to put disparate pieces of the puzzle together. They had to make phone calls, look at credit reports, and synthesize information," Morasch explained. "And we had different people out there with different capabilities making these decisions.

"With ChexSystems, all that information is synthesized and packaged automatically according to criteria we set. If there are any remaining risk factors, then the decision can ultimately be left to a human being."

Total loss at the credit union continually decreases, Morasch said, despite the fact that thieves are continually inventing new fraud and that Patelco is opening more accounts.

"We've cut our losses considerably," he confirmed. In 2001, Patelco charged-off an average of $74,000 per month in shares from checking and savings accounts.

That number was down to an average $26,000 per month last year.

eFunds will continue to address identity theft by developing new solutions, said Gupta, including sharing fraud information across the industry, comparing demographic information including addresses and assisting victims with restitution and resolution.

Patelco uses ChexSystems as part of a three-pronged system to combat fraud. The credit union also uses Primary Payment Systems Identity Chek to validate and format the ChexSystems information and screen against propriety databases of known bad accounts. Finally, Patelco uses an internal database of high risk parameters to prevent transactional fraud in new and existing accounts.

Approximately 3,500 credit unions nationwide use ChexSystems.

CUJ Resources

For additional information on this story:

* Patelco CU at www.patelco.org

* eFunds at www.efunds.com

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