Old-Fashioned Crime (Check Fraud) Demands Updated, 2-Pronged Strategy

Credit unions should employ a two-pronged approach to fighting check fraud -one of the nation's fastest-growing crimes- two experts said last week at the National Association of Credit Union Supervisors' (NASCUS) 38th annual conference.

Marc Krasnick of CUNA Mutual Group and Laura Weinflash of Primary Payment Systems (PPS) said technology advances have made check fraud a very easy crime to commit. The pair told attendees an effective approach in stemming fraud is to combine sound risk management practices, and new check-fraud technology.

"This is a big deal," Krasnick, senior vice president of CUNA Mutual Group's Credit Union Protection Division, told credit union executives. "There are about 16,000 check fraud losses, costing the credit union system $46 million a year. Regardless of size, credit unions are seriously at risk to this crime."

Record High Losses

Nationwide, check fraud losses are at record highs-$12 billion to $16 billion annually- despite a decline in the number of checks being written. The speakers said high-quality and low-cost technology is among several factors contributing to the escalation of the crime.

Krasnick said a critical area for concern is fraud committed by new members. "Approximately 40% of losses occur within 60 days of new membership. It's especially important that credit unions put extended holds on new-member accounts. This will go a long way toward curbing the problem," he said.

Krasnick added that CUNA Mutual provides its credit union Bond policyholders with a number of check-fraud education tools, including its Check Fraud CD-ROM, online Protection Resource Center, and one-on-one risk management training. He said among check-fraud prevention steps, credit unions should:

* Develop a loss-control program.

* Educate staff.

* Utilize check holds on counter deposits.

* Place check holds on ATM deposits.

* Place extended check holds on new accounts.

In addition to prudent risk management procedures, Krasnick said credit unions should consider using innovative technology in fighting fraud. He said that is why after considerable research, CUNA Mutual in July announced it had formed a partnership with PPS, a recognized fraud prevention leader. PPS's suite of technology solutions is a strong complement to CUNA Mutual's check and identity fraud efforts, Krasnick said.

Weinflash, PPS vice president of product solutions, said her company's Early Warning technology enables credit unions to protect themselves and their members against new account and deposit frauds.

"It's not the end game working with just larger institutions," Weinflash said. "By leveraging information we gather from banks and credit unions we are better able to keep the bad guys from becoming credit union members, and deter those who are challenging your risk management procedures."

A Look At What's Available

Weinflash said PPS facilitates the exchange of high-risk accounts, transactions and identities through its National Shared Databases. On a daily basis, she said, hundreds of financial institutions share current information on accounts and transactions, to combat fraud.

The vehicles PPS employs, through its suite of Early Warning Solutions, include:

* IDENTITY CHEKWeb Service, which performs identity validation, logical verification, OFAC screening and fraud detection as part of one integrated solution.

* DECISION CHEK MICR and DEPOSIT CHEK Inquiry, which provides access to the most current status of information on nearly 200 million draftable accounts.

"Check fraud isn't going away, it's getting more sophisticated," Krasnick said. "PPS was a natural fit, with solutions that go hand- in-hand with CUNA Mutual's risk management program and front-line staff training. By combining sound risk management practices and PPS' technology solutions, a credit union can make great strides in curbing check fraud."

A recent adopter of the PPS solution is SunCorp Corporate Credit Union, Westminster, Colo. SunCorp CEO Eric Kenealy facilitated the NASCUS session on fraud, and strongly endorsed SunCorp's decision to sign on with PPS.

"We did a lot of due diligence, and we are very confident this product is going to reduce check fraud," Kenealy said. "Every dollar in check fraud saved is a dollar earned for our members."

Rick Uhlmann

Senior Manager, Media Relations

CUNA Mutual Group

(800) 356-2644 x8940

rick.uhlmann cunamutual.com