5 Fraud Trends Hitting Credit Unions Now

5 Fraud Trends Hitting Credit Unions Now

U.S. credit unions face five accelerating fraud threats: ATM attacks, new-account fraud, account takeovers, plastic-card fraud, and check fraud. This article outlines early warning signs and three frontline checkpoints—frontline education, empowered call centers, and modern controls—to cut losses without crushing member experience.

Fraud is evolving faster than ever. Consumer-reported losses are up 25% since last year, totaling more than $12.5 billion. From the frontlines of bond underwriting, Allied is seeing high frequency and high severity in the following categories.

 

ATM losses

Both physical attacks (like hook-and-chain drag-aways) and technology-based attacks (like skimming and jackpotting) result in enormous losses, ranging from $40,000 to $200,000 per targeted machine. These losses go beyond the cash inside and include the machine replacement cost and additional security protocols to prevent future incidents. There is a silver lining: the frequency of hook-and-chain attacks is declining. But it’s not all good news — jackpotting (ATM emptying) attacks are on the rise.

 

New account fraud

Year over year, the FTC ranks identity theft among the top reported fraud types, and this year, it has taken the top spot. Harvested credentials are used to open new accounts fraudulently. The window of liability is wide open, especially as credit unions eager to grow membership may overlook early warning signs.

 

Account takeover fraud

Fraudsters also use stolen credentials to access existing accounts, often targeting prime and super-prime accountholders who have pre-approved offers. They may impersonate your credit union and stage a “fraud scare” to build trust. Regardless of the tactic behind the crime, this type of fraud is invasive, complex, and difficult to quantify.

 

Plastic card fraud

This includes both card-present and card-not-present (CNP) fraud. Card-present fraud often stems from enabling mag-stripe fallback, while CNP losses frequently follow data compromise, including skimming and large-scale breaches. CNP fraud alone totals $750.6 million in losses reported this year to the FTC.

 

Check fraud

Treasury checks are a major target. Mail theft and washing, counterfeit stock, and duplicate presentment are also on the rise. Despite declining check usage, losses are trending upward. With the U.S. Department of the Treasury’s ongoing shift to electronic payments, Treasury check fraud is expected to dwindle.

The high frequency and severity of these five fraud types also come with a steep price tag, and the costs show up on balance sheets. The invisible losses are just as damaging: dwindling member trust.

 

Are prevention measures creating friction or reducing fraud?

Is friction in the name of fraud prevention, like multi-layered authentication, biometrics, or delayed account access, ruining the experience for everyday members?

Financial institutions need layered defenses to cut losses without crushing the member experience. While some fear member pushback, credit unions report to Allied that most members understand the need for friction and appreciate the protections in place.

As fraud losses loom, credit unions must make every dollar count. There is no time to loosen fraud-prevention measures — even for the sake of convenience.

 

Awareness is key: 6 early warning signs of account fraud

As seen with ATM attacks, bad actors are pivoting from physical tactics to psychological ones. Identity theft continues to lead fraud losses, often perpetuated by scammers exploiting human empathy or error. Once credentials are harvested, accounts are opened using stolen or synthetic identities, and the ripple effect begins.

  • Unusual purchases or withdrawals
  • Unconventional or erratic account-access attempts
  • Unforeseen contact-information changes
  • Unfamiliar loan application(s)
  • Unclear or duplicate communications reported by the member
  • Unexpected or new geolocation or device-usage patterns

Awareness helps you spot issues early. Tighter controls help stop fraud in its tracks.

 

3 fraud-fighting checkpoints your CU needs (and may already have)

Risk checkpoint #1: Educate frontline staff

Branch teams play the role of risk managers. They know members best. Train them to deliver excellent service and to recognize red flags early and often.

Risk checkpoint #2: Empower call-center staff

Call-center agents are also risk managers. Equip them to ask tough questions that expose fraudsters using deepfakes or synthetic identities, and give them clear channels for reporting anomalies. Combining human insights with technology fights fire with fire.

Risk checkpoint #3: Leverage technology

Bad actors use tech to their advantage — so should you. Ask these questions of your controls:

  • Have we upgraded card processing to the most recent version of 3-D Secure?
  • Are members encouraged to use contactless POS payments with tokenization?
  • Do behavioral biometrics help us know our members and their transaction habits?
  • Do we delay scaling products and services for at least 30 days after account opening?

 

The good news and the bad

The bad: Fraud isn’t slowing down. Scammers and hackers are getting smarter, and the fight is never-ending.

The good: You don’t have to battle fraud alone. Credit unions have more opportunities than ever to collaborate and fight back as a united front. Controls being implemented across the industry are making fraud less profitable for scammers — which is good news for your shop and for the movement.