Small banks' battle to thwart unemployment scams

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As banks try to stop fraudsters from exploiting unemployment insurance programs overwhelmed by the pandemic, some of their efforts are working and others are falling short. They're finding that customers are unknowingly complicit and it’s hard to uncover the full story behind a transaction.

In thousands of cases around the country, scammers are stealing other people's identities and using them to successfully apply for unemployment insurance. They often route the payments through so-called money mules who themselves in some cases may be victims of a romance scam or some other kind of con.

And the hard-to-detect fraud often leaves banks holding the bag.

“We've learned that hardly anybody tells us the truth about what's really going on,” said Mary Fowler, CEO of Peoples Bank in Magnolia, Ark.

Banks are trying to educate customers and employees and analyze deposits for signs of foul play. But they're also frustrated by the ongoing struggle with clever enemies armed with rafts of stolen data from past data breaches.

Fending off scammers at Peoples Bank

The the $207 million-asset Peoples recently lost thousands of dollars in a scam in which a customer received a $9,250 deposit into his bank account from the Maine Department of Labor. As is customary with ACH deposits, the account was credited quickly.

The customer — who may have been a mule for the main perpetrator — soon asked to raise his debit card limit to $5,000. Employees of the bank saw the $9,250 check coming in and complied. The customer then went to the post office to buy $4,000 of money orders, to Walmart to get $1,000 and to a bank ATM to withdraw $2,000.

When the bank called and asked about these transactions, the customer said he was getting the proceeds of a car loan he received from an online lender. “He may have just been making all this up, but this was the story he gave us,” Fowler said.

When the bank realized it was a scam (the payment had a different name associated with it, and the customer didn't have a job in Maine), staffers asked him to bring the money orders and cash in. He didn't reply, and his phone number stopped working.

“That money just slipped through our fingers like that,” Fowler said. “And since we knew it was fraudulent, we sent the money back to the [labor department's] bank it came from, and now we're questioning if we should have just kept the money and let the bank that sent it to us” take the consequences.

In hindsight, Fowler realized the unemployment insurance payment from Maine should have been a red flag. But the bank receives many ACH payments, they are not associated with a name (only an account number) and it’s not always easy to tell which are good and which are bad.

Now the bank is scrutinizing all ACH payments more carefully, especially those from states.

The customer’s request to raise his debit card limit should have been a second red flag, Fowler acknowledged. Employees have since been trained to give credit limit increase requests a closer look.

In another case, an older female customer got tricked into an online romance in which she was led to believe she had become engaged to a television actor. She asked to have her debit card limit raised to $16,000.

“That did raise a red flag, and we were able to stop it before she sent any money out,” Fowler said. “When we asked her what happened, she said her cousin was sending her the inheritance that she had gotten from her grandparents. We asked her what her cousin's name was, and she gave us the name of this actor that she thinks she's engaged to.”

The customer may have caught on to the romance scam by now, Fowler said.

“They're so embarrassed that they don't want to tell what really happened,” she said. “We've also had people who have been blackmailed by romance scammers that get them to send pictures and then threaten to expose those photos if they don’t do what they say.”

Mitigating fraud at Main Street Bank

Main Street Bank in Marlborough, Mass., which has about $1 billion in assets, has been getting hit with a variation on the unemployment insurance scam other banks have been seeing.

Fraudsters are gathering information about customers from previous data breaches and sending letters claiming to be from the Commonwealth of Massachusetts Department of Unemployment Assistance and demanding that customers provide more information at a website they link to or risk losing their unemployment benefits.

“What's happening is they're taking advantage of this heightened sense of urgency and uncertainty in this environment,” said Jamie Belmore, vice president of marketing at Main Street Bank. “The rise in unemployment is definitely making an impact, and people are scared that they're not going to get their money. In some cases, people go to the nonofficial website that's referenced in the letter and enter in their private information like account information and Social Security information.”

Some customers have reached out to ask if the letter is legitimate. Bank employees ask them a series of questions: Does this seem right to you? Is this coming from the official mass.gov website? Did you file an unemployment claim?

Renee Jaworek, Bank Secrecy Act officer at the bank, said she’s been getting emails daily from branch staff saying customers have said they received a letter like this.

“If you really do collect unemployment, you do have to check in weekly, so it makes it sound very valid,” Jaworek said. “But this would clearly take you to another site where you would put in your personal information that they would use to route that payment to themselves. We've been telling our branches to tell our customers, keep reviewing your statements and your transaction history, looking for anything suspicious. If it makes them feel more comfortable, they can update their online banking credentials. Unfortunately that's all we can really do.”

Jaworek does use an anti-money-laundering system from Verafin to detect scams. It’s recently been programmed to flag unemployment insurance payments from Washington and other distant states.

'We don’t have much hope'

At Peoples Bank, Fowler is trying to figure out the best way to show customers what to look out for.

“Even when we know what we want to tell them, getting the message to people is hard — people are just bombarded with so much information that they ignore most of the messages that they get,” she said.

The bank has shared information on radio shows, in newspapers and Facebook forums.

“But we don't have much hope,” Fowler said. “We're trying to fight the battle on all fronts — customer education, employee education, looking for things on the front end. And then deciding whether we have our customers arrested when they've been a victim of this and they're responsible ultimately, but you feel sorry for them.”

Like Peoples Bank, Main Street Bank coaches staff to encourage customers to look out for scams whenever the opportunity arises.

“When our branch staff hear from customers, they're letting them know to be extra vigilant, especially during these times where there's a flurry of information coming from all different sources,” Belmore said. “Is it unsolicited? Who's sending this to you, whether it be a letter, an email, a text message, a phone call — are you familiar with the person reaching out or the organization reaching out? Are they asking you to do something? Are they threatening you? Are they creating a sense of urgency? Are they asking for your private information? Are they asking you to click on something or open something that you weren't expecting? Is there somebody you can reach out to? Are they providing contact information that you can get more information from?”

Staffers always warn people to not respond directly to the contact on a letter or email, but search for the official website of a company and get contact information straight from there.

The bank has a big notice on its own website cautioning visitors about unemployment scams and other types of fraud.

“The unemployment one has been on the rise," Belmore said, "but there's been other types of fraud surrounding COVID-19 that we've been seeing as well — emails claiming to offer a cure or vaccines or free testing, trying to get people to click on something or open an attachment, claiming to be from a government organization and providing information.”

The bank recommends to customers that they monitor their online and mobile banking transactions regularly and sign up for email and text alerts.

“We say that the best way to protect yourself is to always be monitoring your transactions on a regular basis,” Belmore said. “Unfortunately the fraudsters are always evolving and learning. If only they would use their powers for good.”

AARP announced free coronavirus exploitation-prevention training for bank staff on Monday, which happens to be World Elder Abuse Awareness Day. The new online BankSafe module includes interactive videos, scenarios and activities.

AARP estimates that every year, financial institutions lose more than $1 billion in deposits as a result of the exploitation of Americans over 50 years of age; that group makes up a third of the U.S. population and controls more than two-thirds of U.S. retail bank deposits.

It’s really the states that are going to have to get better at detecting and thwarting unemployment scams, because they are ultimately on the hook, according to Trace Fooshee, senior analyst at Aite Group.

“If the government wants to make a payment to" an unemployment insurance beneficiary, "the bank’s going to enable that payment,” he noted. “And if that payment turns out to be a fraudulent payment, that's a dispute between the consumer and the federal government, or the state government and whomever it may be. So ultimately the responsibility for it lies on the shoulders of the agencies, and they're required to validate the identity of the person who's claiming the benefit.”

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Fraud Fraud detection Elder fraud Cyber security Coronavirus Community banking Digital banking Digital Banking 2020
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