The 'New Member' Risk

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PROVIDENCE, R.I.-Most credit unions are interested in growing their membership base, and that has led to an increase in the number of fraudulent members trying to join.

According to Andrea Hunter, project manager at Andera, opening fraudulent accounts is a problem that is "exponentially growing." The reason, explained Hunter, is that so much consumer information is now readily available online-including birth dates, employment histories, home addresses and more. It's as easy as ever to open a fraudulent account these days. But the bigger problem, she emphasized, isn't the fraudulent account: it's what happens once that fraudster becomes a member, including applying and being approved for credit cards and loans.

Hunter observed that if a big bank lost $2,000 to a fraudulent member, it would likely write it off as the cost of doing business. "To a credit union," she continued, "that really reverberates further into the institution; it scares them on a different level than it scares the bank. There's a psychological impact."

A number of technological solutions exist, starting with identity verification products that check application data against existing public data sources or other files. Beyond that, she said, real-time systems are being developed, along with "contributed data" models, which collect data from a network of institutions regarding charge-offs, account histories and more.

The optimal solution, said Hunter, is a mix of contributed data and person-to-person outreach. One of the ways CUs can protect themselves, is to follow up with new members. "Call them, try to get them involved in the credit union atmosphere," she said.

Not only do those steps provide better feedback for why the member joined and how they can best be served, but "they can also get a feeling for someone who believes in the credit union experience, and they're there because they want to have accounts with us, versus 'This might be someone we should watch more carefully.' "

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