HELOC thefts grow--$6.5+ million, 18 CUs

MADISON, Wis. (1/16/08)--CUNA Mutual Group is warning credit unions that a sophisticated fraud scheme involving home equity line of credit loans (HELOCs) is spreading. So far, 18 credit unions have reported losses or fraud attempts totaling more than $6.5 million.

More losses are expected, said Gary Pate, CUNA Mutual director of insurance compliance and risk management.

The scheme results in a large number of high-dollar funds transfer losses involving HELOCs. Perpetrators target members who have been granted large lines of credit via the HELOCs, said Pate. The perpetrator sends a fax or e-mail requesting the credit union process a funds/wire transfer. Usually, the transfer requests are received at credit unions with call centers, he said.

The requests frequently are for amounts exceeding $100,000 and are sent to different banks in the U.S., China and Japan. Often, wires are sent to accounts with the word "Title" or "Construction" in the account name, said Pate.

Fraud has successfully occurred in credit unions that have strong security procedures, said CUNA Mutual. In some cases, staff followed their credit union's written procedures to include call-backs to a member's secure telephone number. However, fraudsters apparently have arranged, presumably with telephone providers, to forward the calls to their phones and confound credit unions' call-back procedures, the insurer said.

"What's making these scams even more insidious is that the credit union's caller ID indicates the call is going to the member's number of record," Pate said. "In addition, the fraudsters have detailed member information, which is enabling them to answer additional challenge questions from credit union staff."

CUNA Mutual is assisting the Federal Bureau of Investigation and Secret Service in the investigation. On Jan. 3, it also sent policyholder credit unions a risk alert advising them of their responsibilities and offering these loss-prevention recommendations:

• Establish a password system for members prior to accepting funds transfer requests by telephone, fax or e-mail. Also have a written agreement with the member for the use of these passwords. Credit unions are allowed to pass liability to the member for any negligent use of their funds transfer password.

• If there is any doubt as to the authenticity of the funds transfer request, credit unions are reminded they do not have to perform a wire transfer.

• Beware of large dollar requests for wire transfers that draw against a HELOC, particularly HELOCs that have large available balances and little previous activity.

• Limit the amount of wire transfer that can be completed by a call center employee. The wire transfer request should be approved by a manager.

• Record conversations during the call-back and compare it to previously recorded conversations.

• Listen to the caller. Does he or she have an accent that is inconsistent with your membership?

• Perform an additional verification to the member's work and/or cell phone number.

• If the credit union has the information, send an e-mail to the member at home or at work.

CUNA Mutual encouraged policyholders with a loss to contact its Credit Union Protection Response Center at 1-800-637-2676.

Resource Links

CUNA Mutual Group

CUNA's ID Theft Resources