APRIL 3, 2006
Computer Security
By Sonja Ryst
Stopping a Scam from Spreading
Thwarted by bigger banks, ID thieves are taking aim at smaller financial institutions. One credit union provides a model for fighting back
Jim Nichols, a manager at Numerica Credit Union, knew something was amiss when the customer missed his first payment. The card user, whom Nichols didn't name, looked ideal on paper, mailing in a pay stub and driver's license photocopy and boasting an impeccable credit history. And then, within days of receiving a card, the person spent up to the $5,000 limit.
When the account became delinquent, Nichols sprang into action. Nichols, the accounts control manager at Spokane (Wash.)-based Numerica, mailed notices to the address listed on the application and left unreturned messages at home and work numbers.
Finally, after a more thorough credit check and deeper database probe, Nichols tracked down the person whose details were used and learned the "customer" had never tried to open a Numerica account. His identity had been ripped off.
PERSISTENT PROBLEM. Identity theft is becoming an all-too-common problem for managers like Nichols and midsize companies like Numerica. Last year, for the first time, Numerica suffered large enough losses from ID theft that it qualified for reimbursement by its insurance policy. Nichols says a growing number of clients are getting scam e-mails from phishers or having their online résumés pillaged for names, addresses and other personal data.
CUNA Mutual Group, a provider of financial services to credit unions, says that debit and credit card fraud -- much of it caused by ID theft -- accounted for $100 million in losses at the credit unions it insured in 2005. That's up from $38.6 million in 2004.
Larger financial institutions need to contend with ID theft too, of course, but often they have bigger budgets and more resources to fight fraud. So scammers increasingly are targeting smaller companies, says Chris Ryan, director of credit union protection at CUNA Mutual.
Schemes that no longer work at large companies can still reap rewards at small ones, Ryan says: The criminals "migrate to where there is still a victim to be found."
HIGH-PROFILE BREACHES. There are victims aplenty right in Numerica's backyard. The Federal Trade Commission received 5,810 identity fraud complaints in Washington in 2005, compared with 5,654 the previous year.
The state ranked seventh in terms of complaints per capita in 2005, though it's the 14th most populous. Law enforcement officials say the prevalence of ID theft is partly related to a high incidence of methamphetamine use. Other theories include the widespread reliance on online banking in Washington.
Whatever the explanation, Gene Fitzpatrick, senior vice-president for lending at Numerica, says he's been paying heightened attention to ID theft for the past year. In part that's thanks to high-profile security breaches, such as when Atlanta data broker ChoicePoint acknowledged it let more than 163,000 consumers' financial records fall into criminal hands (see BW Online, 3/28/05, "Season Tickets To Court").
Fitzpatrick is also keeping up with rivals that promise identity theft insurance coverage to consumers who open checking accounts. "You have to be competitive," he says.
HITTING BACK. Numerica is "very proactive" for a financial services outfit, says Zan Deery, communications director and lead investigator at Spokane's Better Business Bureau, of which Numerica is a member. The credit union has "seen these things happening to clientele and they feel they needed to step in."
For starters, Fitzpatrick turned to experts. He hired Scottsdale (Ariz.)-based Identity Theft 911, which provides services such as one-on-one guidance to identity theft victims for a fee of 50 cents to $1 per customer account.
Additional services include weekly credit alerts from Chicago-based bureau TransUnion for victims at no additional cost, says Identity Theft 911 Chairman Adam Levin. Companies and consumers can also avail themselves of fee-free services provided by the Identity Theft Resource Center.
There's also a host of other resources designed to help credit unions and other small and midsize companies combat fraud. CUNA Mutual has a list of resources for credit unions here.
In an effort aimed at small businesses, the Council of Better Business Bureaus and Privacy & American Business on Mar. 27 unveiled an educational program that includes updates about security developments. It features a downloadable "Webinar" with experts and educational materials at www.bbb.org/security&privacy. Numerica's rank and file have become more vigilant, too.
USEFUL TRAINING. Trainer Debbie Morse is spending more time teaching new tellers how to keep their eyes open for fraudulent checks. She uses a handout from the Credit Union National Assn. that highlights tell-tale fraud signals, from unnaturally close digits to a lack of perforation on a check.
Typically a full day of a weeklong course is spent on such training, she says. "We did worry about this 15 years ago, but it wasn't as pronounced," Morse says. "Back then we worried about bank robbery."
Numerica is also finding there's strength in numbers. Its credit unions meet regularly with other financial institutions, retailers, and law enforcement authorities as part of the Spokane Bank Secrecy Officers group. Meeting topics range from the type of thefts taking place in the city to how to best support victims.
Group members fax and e-mail warnings to one another about detected scams; the alerts include anything from pictures of counterfeit checks to messages from phishers. "For financial institutions to share things is unusual, but this is an area where they share things openly," says Patsy Gayda, director of branch operation at the Spokane Teachers Credit Union, a rival of Numerica.
PUBLIC EDUCATION. Finally, Numerica is trying to educate more of its members. At the branch level, it's distributing brochures that say how consumers can protect themselves from identity fraud.
Numerica included information about ID Theft 911 in the latest quarterly newsletter, distributed to all account holders. And its Web site points to advice from ID Theft 911, including how to check your credit by obtaining a free annual report via www.annualcreditreport.com and advice on which personal documents to shred.
"We're here to protect their money and use it wisely and keep their trust," Fitzpatrick says. "We want them to know that we're watching things."
As watchful as Numerica may be, the message isn't fully coming across. Sergeant John Kruse, a spokesman for the Wenatchee Police Dept., says he's pleased with his membership and customer service provided by Numerica. But he has yet to hear anything from the credit union on ID theft.
As a law enforcement official, Kruse is more likely than most to be up on how to protect himself against fraud. Numerica is racing to ensure the same can be said of the rest of its customer base.
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