don’t fall victim: loan fraud & scams · 2020. 2. 6. · match application information to...
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CUNA Mutual Group Proprietary | Reproduction, Adaptation or Distribution Prohibited | 1007303-1017 © 2017 CUNA Mutual Group, All Rights Reserved.
Don’t Fall Victim: Loan Fraud & Scams
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When risk management is effective, nothing bad happens and the status quo is maintained.It is extremely difficult to prove the value of ‘nothing,’
so no one takes notice.
But if things go south and you’re blindsided by a problem, the lack of risk management takes the blame.
Five credit unions targeted by fraudsters
100+ fraudulent loan applications submitted
onlineLoans ranged from $7,500 to
$35,000$1Mcredit union’s help
investigators bust $1M fraud ring
Credit Union Times | March 05, 2019 at 10:00 AM
From just last year…
V i c t i m i d e n t i t i e s o b t a i n e d f r o m s c h o o l a n d h o s p i t a l w e b s i t e s
No intention of repaying the loans and will ultimately be
discovered at the time of first payment default
Fraudsters
Employees who have a need, see an opportunity, and who can
rationalize their actions
Employees
Fraudulent vendors or dealers trying to make a quick buck
Vendors
Members with financial problems attempting to borrow their way
out of debt
Consumers / Members
Who’s committing loan fraud?
The fraud
footprint
Email Phone Text OnlineFace-to-Face
A s yo u r c h a n n e l f o o t p r i n t g r ow s , s o d o e s yo u r f r a u d f o o t p r i n t .
6
.
O n l i n e i s j u s t a s e a s y a n d f r a u d s t e r s c a n c o n c e a l t h e i r
i d e n t i t y
7
Full ID packages
$30–$100 black market
Comprises multiple pieces
of PII such as name,
address, phone number,
SSN, email address, and
bank account number
The number of exposed
Personally Identifiable
Information (PII) records went
up 126% in 2018.
Source: 2018, Identity Theft Resource Center (ITRC)
Source: Symantec
8
Long-tail ImpactID Theft; fraudulent accounts; and loan fraud
Credit unions with nonprofit organizations
(e.g., charities) within fields of membership are attractive targets
Credit unions offering online account opening
and online loan applications are
particularly at risk
In-person applications at a branch office
ID Theft Related Losses
• New account fraud(fraudulent deposits followed by withdrawals)
• Loan fraud
Member Authentication
ChallengeB A L A N C E
Transaction SecurityVirtual Convenience
Online is usually preferred
as fraudsters can conceal their identity
New Account
Fraud Variations
Online Account Opening
and New Loan Fraud
• Loan documents completed with electronic signatures
• Some scams involve fictitious auto dealers• Disbursement checks are usually forged• Fraud rings are recruiting people to open
accounts online, and then request loans
New Accounts and
Credit Card Applications
• Accounts opened online • Credit Cards opened online (online
applications without signatures)• Fraudsters use ACH booster payments
Other Account / Loan Fraud Challenges
• Accounts / loans often opened online using stolen identities
• Verification solutions using credit reports easily defeated
• Membership qualification by joining non-profit organization
• Account funded with money order mailed to credit union
• Apply for loans online including credit cards
• Fraudulent paystubs often used
• Loans closed remotely with electronic signatures
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• Fictitious identity using a combo of real and fabricated info
• Used to obtain credit, open deposit accounts and getdriver’s licenses and passports
• One of the most difficult to detect and fastest growing
• Patient fraudsters realize that if they build that identity,the payoff ends up much bigger
Geolocation data can compare the location of the device used with the stated location to evaluate the likelihood of fraud
Fraudsters most prized data!
Typical victims:children, elderly
or homeless
SSNof people
who don’t use credit
Synthetic Identity Theft
Risk Mitigation Tips
& Best Practices
Match application informationto trusted sources of information
Check phone records Verify email addresses Verify address location
− Let’s Get Technical
Examine device history Review IP address Calculate distance between
IP address location and applicant’s address
Utilize a fraud detection service
Validation Tools
• Credit Report• Photo ID and ID Validation• Bank Account Ownership• Knowledge-Based
Authentication• Fraud Detection Service• Out-of-Band Phone Verification
Online Applications
Online Loan
Applications:
What should
you look for?
Online Loan
Applications:
What should
you look for?
Online Loan
Applications:
What should
you look for?
Online Loan
Applications:
What should
you look for?
Emerging RisksCredit Report Review
For more validation tips, check out…An Employee’s Guide to Loan Fraud
What to look for…
• Mixed fonts• Format inconsistencies• Math does not calculate
• YTD totals not consistent with pay period• Gross (-) deductions ≠ Net Income
• Date inconsistencies
Fraudulent Paystubs
What’s happening in mortgage fraud?
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Emerging RisksReal Estate Closing Impersonation Fraud
• Fraudsters search for upcoming closings
• Fraudulent emails sent to credit union or purchaser / member with “updated wire instructions”
• Emails look similar to actual emails; however, typically have similar faults as other phishing emails
• With social engineering fraud tactics, you need to exercise additional caution and not cave to urgent demands
2424
Impersonation Fraud
• Develop formal procedures for handling these requests• Require redundancies to sign-off on transactions• Don’t publish employee information on website
(names, titles and email addresses)• Don’t conduct business using personal email accounts• Use out-of-band method to authenticate executive’s
email requesting wire transfer
– Face-to-face
– Call extension / mobile phone
• Verify emails containing “updated wire instructions” by calling closing agent using reliable phone number
• Follow an always alert culture
Quicktip
Internal Fraud & Ways to Detect
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Lack of Internal Controls
Lack ofManagement Review
Override of Existing Controls
Lending Oversight
30% 19% 18%
• Approving loans outside lending authority• Fictitious loans• Unauthorized loans
Primary Internal Control Weaknesses
Source: 2018 Report to the Nation on Occupational Fraud and Abuse, Association of Certified Fraud Examiner, Inc.
Source: 2014 - 2018 Internal Claims DataCUMIS Insurance Society, Inc
51% dollars paid of Bond Claims are related to
employee dishonesty & faithful performance
‹#›
Separation of Duties:• Assistant Branch manager opened accounts &
approved loans for a well qualified member that was not an active borrower
• Stole the loan proceeds & transferred using home banking.
• Advanced loan due dates to avoid delinquency.• Issued credit and debit cards in the member’s
name for his personal useSource: Claims data, CUMIS Insurance Society, Inc.
Internal Fraud$153,000+ loss
Emerging RisksCredit union impact
•Develop and maintain sound policies, procedures, and controls
‒ Segregation of Duties
‒ Internal Audit
•Be sure to address concentration risk limits and monitor results
•Report consistently to the Board
•Consider expanding into new loan segments
Lend
ing
Ove
rsig
htM
itiga
tion
Tips
Other trends in loan fraud
Loan Stacking
• Migration to online lending as preferred channel• Auto-decisioning results in a much faster
process− Less time from application to funding− Fueled by FinTech lenders
• Window of opportunity between loan approval and funding to apply for multiple loans
• Targets consumers with high FICO scores-Super prime borrowers
Wha
t is
it?
Stacked loans
4x more likely to
be fraudulent
Source: TransUnion
• Velocity Tracking
• Stronger Identity Proofing
• Multi-factor Authentication
• Identity Management
Risk Mitigation:
Loan Stacking
Phantom Loans
• Dozens of fraudulent automobile and personal loan applications in their names and the names of at least 30 other individuals recruited to participate in the scheme
• Co-conspirators created fake automobile dealerships that claim to be the sellers of vehicles purchased with the fraudulent loans
• A car is never sold, but the lender provides the proceeds of the loan to a dealer or 3rd party because they have been provided false and misleading information that a real car has exchanged hands
How
doe
s it
wor
k?
Risk Mitigation for Phantom Loans
• Scan loans for all types of fraud at the time of application
• Ensure the borrower, car, dealer, and seller are reliable before making any loan
• Apply security tests to better identify a potential member’s identity during the on-boarding process
• Consider utilizing VIN search tools to confirm ownership of collateralized vehicles
• Confirm dealership buildings appear appropriate - visit in person or use resources such as Google Earth to research the dealer address
• Apply adequate due diligence when adding auto dealerships to your indirect lending programs
Wrap-up
• The lending landscape is a
dynamic environment for fraud
• Stay ahead and evolve.
• Protect members from themselves.
• Educate staff to stay on their toes.
• Remain vigilant and scrutinize
identities, applications, and
verification tools
Q A&
CUNA Mutual Group
Risk & Protection Response Center800.637.2676riskconsultant@cunamutual.com
Ask a Risk Manager interactive form
Looking for additional assistance
Select you’re a credit union,then choose option 4
Stay on top of emerging risks
• RISK Alerts – Warning Watch Awareness• RISK Alert Library
• Risk Insider: Emerging Risks
• Loss Prevention Library (whitepapers, checklists)
• Webinars & Education
• Risk Assessments
Protection Resource Center @ www.cunamutual.com
www.cunamutual.com
This presentation was created by the CUNA Mutual Group based on our experience in the credit union and insurance market. It isintended to be used only as a guide, not as legal advice. Any examples provided have been simplified to give you an overview of theimportance of selecting appropriate coverage limits, insuring-to-value and implementing loss prevention techniques. No coverage isprovided by this presentation/ publication, nor does it replace any provisions of any insurance policy or bond.
CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, itssubsidiaries and affiliates. Insurance products offered to financial institutions and their affiliates are underwritten by CUMISInsurance Society, Inc. or CUMIS Specialty Insurance Company, members of the CUNA Mutual Group. Some coverages may not beavailable in all states. If a coverage is not available from one of our member companies, CUNA Mutual Insurance Agency, Inc., ourinsurance producer affiliate, may assist us in placing coverage with other insurance carriers in order to serve our customers’ needs.For example, the Workers’ Compensation Policy is underwritten by non-affiliated admitted carriers. CUMIS Specialty InsuranceCompany, our excess and surplus lines carrier, underwrites coverages that are not available in the admitted market. Data breachservices are offered by Kroll, a member of the Altegrity family of businesses. Cyber liability may be underwritten by BeazleyInsurance Group.
This summary is not a contract and no coverage is provided by this publication, nor does it replace any provisions of any insurancepolicy or bond. Please read the actual policy for specific coverage, terms, conditions, and exclusions.
© CUNA Mutual Group 2018 All Rights Reserved.
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