A wave of counterfeit checks has been taking aim at credit unions, and credit unions that aren't on the lookout could end up footing the bill.
According to a risk alert from the Carmel, Ind.-based Allied Solutions, criminals have been sending consumers "official checks" that are fraudulently written out of credit union operating accounts. Consumers unwittingly deposit the checks at their local financial institutions, and once everyone eventually realizes the checks are fake, it's often too late — consumers and sometimes even credit unions are left holding the bag.
Mailing counterfeit checks to consumers isn't that new — in fact, the NCUA issued a fake check scam warning back in April. But the frequency of the crime has become an issue lately, according to Ann Davidson, who is the vice president of risk consulting at Allied Solutions.
"I've seen this over the years, this has been going on. But it's really picked up quite a bit," she said.
How it Happens
According to the alert and to Davidson, the fraudsters target consumers who are selling things online, looking for jobs online or applying for loans online. The criminals then enter into transactions with those people and send them fake "official checks" that are supposedly from credit unions via UPS, certified mail or regular mail. Many times the criminals send checks made out for more than the agreed upon amount, and those checks arrive with a request that the receiver wire some or all of the excess back to the sender.
The check amounts have typically ranged from $1,300 to $8,800, the alert noted.
"So what's going to happen is, that member that brought the check in, they go and spend the money or they wire that money to the bad guy. They're going to be out that money," Davidson explained.
Fighting Back
Mary Torsney, who is a SVP and CFO of Financial Partners Credit Union in Downey, Calif., said that a credit union it just merged with was hit by the scheme in 2017. Fake checks were caught right away.
"The fraudulent checks … they were so bad that the institution receiving them knew they were fake," she said.
Financial Partners has $1.3 billion in assets and about 75,000 members.
Positive Pay, which matches information on issued checks with information on those presented for payment, can be an effective tool for fighting the growing scheme, Davidson said. Credit unions with Positive Pay can then quickly kick fake checks back to the financial institutions that accepted them. Credit unions that don't have Positive Pay might clear the items instead, exposing them to potential losses, she said.
Davidson said she talks regularly with credit unions but isn't sure how many use Positive Pay — or even know what it is.
"I get kind of like a deer-in-the-headlights [look] when I bring it up, because they'll say, 'Well, I don't know if I have it.' And then what really shocks me is some of their vendors don't even have it available," she said.
Other tactics are helping credit unions detect fraudulent checks, too, Davidson noted. Many reject presented checks that whose check numbers don't fall with a certain range or sequence, for example.
"Say they're not using Positive Pay but they're using sequence and that sequence is way out in the future — that could be a loss prevention mitigation measure, too," she said.
The most potent defense against the counterfeiting crime wave could be communication, Davidson noted.
"Credit unions should be validating and confirming with other credit unions: 'Is this really a check that you wrote?' Are they putting a hold on it until that item clears?" she said.
In any case, the trend highlights a bigger issue at hand, Davidson said.
"A lot of credit unions don't put a lot of value on risk management, but it's huge in the industry today," she said.
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