ABA Banking Journal - January 2008 - (Page 12) briefing A mixed medley of fraud news F irst the good news. The estimated cost of attempted check fraud jumped 122% over the last three years to $12.2 billion, but actual check losses rose just 43% to $969 million, according to ABA’s latest Deposit Account Fraud Survey Report. That suggests that banks’ check fraud prevention systems were doing a good job thwarting the increased number of attempts. The most effective measures, the survey noted, included the use of check imaging software, kite detection service on the teller line, external databases of nonfinancial information for customer authentication, and positive pay. Also cited were employee training, new-account screening software, and signature verification for large-dollar items. Though not the largest fraud category, counterfeit checks are the fastest-growing cause of actual check fraud losses. These checks, stemming from such crimes as check and wire lottery scams, caused estimated losses of $271 million in 2006, up 160% from 2003, and representing 28% of total check fraud losses. The most common form of check fraud, however, remains return deposit items, accounting for 38% of fraud losses in 2006, down from 41% in 2003. Next came forged signatures and endorsements, representing 30% of losses. New account fraud accounted for 26% of check fraud losses overall, but 46% of losses for community banks. The number of check fraud cases actually declined from ’03 to ’06, from 616,469 cases to 561,306 cases, but the average loss per case increased from $1,098 to $1,727. The ABA survey was based on input from 176 banks. The 192-page report can be purchased for $400 for ABA member institutions or $800 for nonmembers (call 1-800-BANKERS). unusual transaction that they specify; 35% want notification when a bill is due or has been paid, and also for any changes to personal information (password, phone, e-mail, physical address, etc.); 33% want notification when balances fall below a pre-set level and for confirmation of a deposit. Regarding personal information changes, Javelin found that only 29% of the largest banks and credit unions alert customers when this information changes, yet in 2006 66% of all account takeover fraud involved change of address. News from the ID theft front Another bit of good news is that the incidence of identity theft is down since 2003. Rachel Kim, risk and fraud analyst with Javelin Strategy and Research, reported at ABA’s Banking Leaders Conference this fall that ID theft victims fell from 10.1 million in 2003 to 8.4 million by mid 2007, based on data from about 5,000 survey respondents. As the pie chart below shows, the sources of identity fraud are still predominantly physical. Kim presented data that showed that 45% of consumers surveyed want their financial institution to alert them to any Impersonation is the problem As you might expect, someone who has spent time as a beat cop—in Hong Kong no less—is apt to have a no-nonsense view of things. So it is with Richard Parry, senior vice-president of JPMorgan Chase, and a risk manager and fraud expert for 30 years, who said, “90% of our fraud loss [in banking] is due to our inability to identify a person at the place of interaction. We don’t have a problem with ID theft,” he added. “That’s not possible—a person still has his identity—the problem is impersonation.” Parry, who spoke along with Rachel Kim at a conference session on fraud management, said banks too often view customer interaction through the prism of products instead of through the channel used. “We create five different call centers for five different products and as a result create opportunities for fraud,” he said. “We need to get real about authentication,” the British-born Parry stated, citing voice authentication as an example of a more robust approach. The enrollment process is the key, he said, referring to the process by which a bank (or any entity) determines who a person really is; where they live, and so forth. The current system of using state licenses “is ludicrous,” Parry observed. It’s incredibly easy to either fool the state motor vehicle authorities by showing them a Social Security number, or simply by creating counterfeit licenses. Yet this is the basis for most authentication efforts. Parry, who noted that his views are not necessarily those of his employer, is a supporter of a national ID. In Hong Kong it takes an interview of several hours and weeks of checking after that to get a national ID. But once you have it, said Parry, “it’s liberating. Transactions are quicker and more secure.” — Bill Streeter Sources of identity fraud (by the 42% of victims who could identify the source) Check fraud losses at U.S. banks 1000 (millions) 969 815 679 568 487 512 698 677 900 800 700 600 3% 3% 15% Data breaches In-store, mail, telephone purchases, or transactions Some other way 4% Online purchases or transactions 4% Phishing 8% Computer viruses, spyware, or hackers on PC 500 400 300 200 9% From stolen paper mail 38% From a lost or stolen wallet, checkbook, or credit card 100 0 1991 1993 1995 1997 1999 2001 2003 2006 15% By friends, acquaintances, relatives, or in-home employees 12 JANUARY 2008/ABA BANKING JOURNAL www.ababj.com/subscribe.html http://www.aba.com/Surveys+and+Statistics/SS_Depositfraud.htm http://www.aba.com/Surveys+and+Statistics/SS_Depositfraud.htm http://www.ababj.com/subscribe.html
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