MADISON, Wis.-The record number of new members joining credit unions in the last six months has only increased the importance of using identity-verification services.
Ken Otsuka, senior consultant, risk management for CUNA Mutual Group, said he suspected that as a result of Bank Transfer Day some CUs have become backlogged in the new-account process. "Nevertheless, I'm a firm believer of having prudent procedures in place to verify the identity of new members that join the credit union."
Otsuka noted that CUNA Mutual Group "has seen our fair share of new account frauds involving fraudulent checks, as well as loans, where the fraudsters were successful in joining credit unions or opening accounts at credit unions using other peoples' names and social security numbers. When they do open an account under someone else's name and social security number and the credit union uses an ID-verification service...there's generally going to be a red flag that gets returned to the credit union."
That's usually a notice of an address discrepancy, said Otsuka, but the process is a simple step to help prevent fraud.
ID-verification solutions are especially important for CUs that do a lot of online account-opening, said Otsuka. "Because they're not in a face-to-face situation with that member, they're not in a position to physically inspect a government-issued photo ID," he said, adding that even those can be faked fairly easily.
Otsuka stressed that even with the recent flood of new members streaming into CUs, that's no reason to change the standard account-opening procedures. "A credit union might want to save a little time now at the new accounts area so that they can open as many accounts as they possibly can, but in the end, when the losses start to surface, perhaps it wasn't a good idea to take shortcuts in the first place," he said.
What Criminals Know
Many fraudsters are smart enough to know that FIs often put check holds on new accounts, and Otsuka said that they often wait anywhere from 30 to 90 days before beginning to pass fraudulent checks. "A lot of times fraudsters open up their accounts with good money-maybe a $5 money order-and then they apply for a loan," said Otsuka. "When they get approved for a loan, those losses are much more severe than the type involving a fraudulent check."
While some CUs rely on using "out-of-wallet" questions to verify member identities-such as the address of the house the member grew up in or the year he or she graduated from high school-Otsuka advised against that strategy. Not only do consumers list extensive amounts of personal information in their social media profiles, but fraudsters can also order a skip trace and have access to information on past addresses and employers.'
"There's a ton of resources out there for the fraudsters to use to get our personal information," said Otsuka. "Now they can answer any challenge question that's thrown our way."
