Beset with the growing problem of fraud, Patelco Credit Union has deployed new software that's allowed it to notice potential ID theft trouble in new account applications in just three seconds, a move that has also helped it cut fraud losses by more than half.
The $3.5-billion CU has recently started using an identity validation system from eFunds to instantly check the address provided on a new account application against the applicant's address on credit reports. Patelco uses eFunds Corp.'s ChexSystems' identity screening tool for new account openings-whether they originate from the branch or over the Internet.
"ChexSystems was built to identify good new members and bad new members," says Erin Morasch, internal auditor at Patelco. "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 product 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," Morasch says.
While fraud remains a threat, total losses at the credit union are on the wane, even though thieves are continually inventing new fraud and more accounts are being opened at Patelco. In 2001, Patelco charged off an average of $74,000 per month in shares from checking and savings accounts because of fraud costs. That number has since been reduced to about $26,000 per month.
The 205,000-member Patelco CU opens between 3,000 and 4,000 new accounts every month. And when a new account is opened under a fraudulent identity, Patelco could lose big, he adds. "Identity theft is a small percentage of our total loss. But when we do lose on identity theft, the losses are large," Morasch says.
While a good initial move, this new approach isn't bullet proof because address discrepancies don't necessarily mean crime, according to Rahul Gupta, svp and division executive of eFunds, based in Scottsdale, AZ. "The downside is the large number of false positives results that will be generated because of valid new movers."
Patelco uses ChexSystems as part of a three-pronged system to combat fraud. The CU 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.
Last October, Patelco started using its existing automated decisioning platform for new Internet accounts to verify new accounts at all 36 branches.
"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."
Patelco fights hundreds of identity- theft attempts every year, but members are victimized fewer than 10 times per year. Morasch has seen individual losses of up to about $35,000. "Fraudsters are learning that the fastest way to make money is to take over another consumer's identity with good credit," adds Gupta, whose ChexSystem has about 3,500 credit union users. Plans include new products for sharing fraud information across the industry, comparing demographic information like addresses, and assisting victims with restitution and resolution.
