Risk Management: Add Convenience, Add Fraud

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Rapidly developing technology, the Worldwide Web and indirect lending help credit unions better serve their members, but credit unions should be aware these conveniences can increase exposure to litigation, identify theft, check fraud, and plastic card fraud.

Indirect lending has emerged as an excellent tool to increase loan volume and generate revenue while providing members convenient point-of-purchase financing. But such third-party loan arrangements can create compliance, operations and fraud risks, plus expose credit unions to litigation that can negatively impact business results.

CUNA Mutual has seen increased claims related to indirect lending. We will offer new training in 2004 to help CUs mitigate these risks and those of other high-profile perils. These include:

* ID Theft-Technology and the Web have made identity theft easy to commit and the fastest-growing crime in the U.S. Credit unions can better detect and reduce ID theft by using technological tools available through outside verification services, such as Primary Payment Systems, and by requesting credit reports for all new-member applications.

* Check Fraud-These losses are estimated at $13 billion per year and growing by 2.5% annually. Credit unions should invest in continued education on check fraud reduction with emphasis on the Uniform Commercial Code and check collection and check return rights.

* Plastic Card Fraud-Visa and MasterCard will introduce convenient key ring "FOB" cards in 2004, which could lead to more lost and stolen cards. Card authentication programs and biometrics are among the strategies card issuers can use to curb plastic card fraud.

Deborah Humbert is a senior risk management specialist with CUNA Mutual Group.

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