Financial Crime Trends to Watch in 2023

In 2021, consumers reported losing over $5.8 billion to fraud, more than a 70% increase from the previous year, according to the Federal Trade Commission. And, in the first six months of 2022, $3.56 billion was lost to online fraud, almost a 50% increase from the same period in 2021. Fraud is increasing, and there seems to be no shortage of avenues through which it occurs: Credit card, insurance, identity and the list goes on. In addition, the state of the economy and the lingering threat of a recession have encouraged scammers and fraudsters to increase their efforts.

Below are three key themes around financial crimes that credit unions should keep in mind heading into 2023, along with strategies they should consider to survive.

Check Fraud Is Increasing

Although check circulation has been declining for some time, check fraud attempts have been dramatically rising over the last several years. A recent FrankonFraud article stated that check fraud currently makes up around 60% of all attempted fraud against U.S. financial institutions. The abundance of personal information included on a check, i.e., a customer’s name and address, makes it very easy for fraudsters to open a bank account and apply for loans on behalf of the victim. Additionally, fraudsters are now figuring out new ways to commit check fraud by leveraging social media.

With greater access to personally identifiable information in this digital world, real-time solutions are crucial in all avenues where checks are presented – teller, mobile and remote deposit capture systems. Even if “old school” tactics may seem obvious, there are still plenty of people who fall victim. Ensuring consumers are educated on how fraudsters attempt to defraud them is a proactive way to keep check fraud at the forefront of their thoughts.

Identity Fraud Has Found New Footholds

Over the past two years, fraudsters have thrived on government programs, like the Paycheck Protection Program (PPP) and stimulus check fraud, and they continue to keep an eye on what new government programs arise, finding ways to crack the system. For example, the new student loan forgiveness program and unemployment scams are rising. In fact, in the first quarter of 2022, Americans were scammed out of $68 million as a result of fake business and job opportunity scams, according to an FTC report. Student loan scams amounted to an estimated $5 billion last year, scam call blocking app Robokiller reported.

Although fraudsters are keeping up with the news and acting fast, this should not be discouraging. There is an opportunity for financial institutions to learn from previous mistakes to ensure they are prepared and resilient in the face of new tactics. Effective steps that credit unions should incorporate in their systems include multifactor authentication, automated fraud detection/artificial intelligence, identity theft services, employee training and member communications. Moreover, the industry is collaborating better than ever, sharing resources and stories to help financial institutions defend themselves against fraud. It is paramount that credit unions take advantage of the many community-wide resources at hand to build their own prevention strategies, designed to keep their business and accountholders safe.

Changes in Federal ­Regulation Are Increasing the Protection of Consumers

In the past, when a fraudster obtained financial information from a consumer and made unauthorized transactions, the consumer was generally held responsible for the financial consequences. Now, the CFPB’s new interpretation of Reg E provides more protection to the consumer in the case of a fraudulent attack. Under the new interpretation, if the consumer does not directly benefit from the stolen money, they are covered under Reg E, shifting the burden to the financial institution to cover the loss. With the continued uptick in fraudulent activity, placing the financial responsibility on financial institutions will create even more stress on credit unions and smaller community financial institutions that aren’t able to take on large amounts of loss.

Modern technologies that can proactively monitor and detect fraud before it happens and in real-time will ensure the funds do not leave the institution or post to an account until a fraud analyst can review the alert. Modern AI and machine learning technologies can also analyze member behaviors, track transactions and report on any deviations from usual behavior in real-time. There are new AI that even take detection further than just behaviors by looking at previous undetected patterns that AI can see and determine. Fully automating fraud-detection processes will allow for quick reaction times, resulting in minimized risk. Flexible, forward-looking technology can help credit unions more effectively adapt to and manage today’s constant threats, while also building an atmosphere of trust and serving accountholders in their moment of need.

While fraud is nearly impossible to end, credit unions that prioritize modern fraud prevention strategies and internal/external education leading into 2023 will help bolster member and employee confidence and maintain their strong, community-focused stance – which is especially important as we head into yet another year full of economic uncertainty.

Rene Perez Director of Financial Crimes Solutions Sales and Financial Crimes Consultant Jack Henry Monett, Mo.