MADISON, Wis. (10/23/08)--CUNA Mutual Group has posted two additional risk management resources on its website to help credit unions protect themselves against potentially uninsurable risks resulting from new technologies designed to improve member service. “Technology is advancing at lightning speed and permeating every aspect of business and personal transactions, and the accompanying risks are emerging at nearly the same pace,” said Ken Otsuka, CUNA Mutual risk manager. Online Deposits and Remote Deposit Capture are newer services that offer members more convenience but with a heightened risk of fraud. Credit unions can mitigate these risks while expanding services and increasing member convenience by implementing simple fraud prevention best practices, Otsuka said. Online deposit service enables consumers to enter deposits to their accounts through the credit union’s home banking system. “Members typically receive immediate availability to funds and have a certain number of days in which to mail the physical check to the credit union. This convenience may create an uninsurable exposure for the credit union if a member withdraws funds from the online deposit without sending a check,” Otsuka said. Offering this service is a business decision of the credit union, but creates risk exposures that must be assessed and considered when establishing program parameters, he said. To help credit unions assess and prevent risks associated with online deposits, Credit Union Protection Risk Management has developed a white paper titled, "Online Deposits--Reduce Risks For Your Credit Union." Another remote deposit service increasingly offered by credit unions is Remote Deposit Capture (RDC). Though primarily instituted for business members, the service is evolving for use with both business and consumer members. RDC allows members to capture check images and transmit them electronically to the credit union for deposit. A recent study by Celent reported 40% of all U.S. financial institutions will have adopted RDC by the end of 2008. Ultimately, RDC quickens funds availability and offers substantial benefits, such as convenience, reduced transportation risk and cost, and processing efficiencies. “Despite these benefits, RDC creates both operational and risk issues for credit unions, and credit unions must exercise due diligence to understand these risks, as well as related regulations, laws, contracts, operations, and technology issues,” Otsuka said. Credit unions should proceed cautiously with RDC because most losses to business members are not insurable, CUNA Mutual said. Potential loss scenarios include:
* A business unknowingly receives forged, altered, or counterfeit checks and includes them in the deposit image file transmitted to the credit union; * The original payee is changed through alteration or counterfeiting; and * A dishonest employee steals the original checks after imaging and forges the company’s endorsement to negotiate them.
Credit Union Protection Risk Management has also created a white paper for credit unions considering RDC, titled, "Remote Deposit Capture Service--Risk Implications." The remote deposit white paper contains a number of recommended best practices for credit unions to consider when evaluating these services. For more information, use the resource link.