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Michigan Credit Union League

Credit Union Says Fraud Case Shows Need for Federal Retailer Reform

A Bay City credit union executive believes a recent problem with debit and credit card fraud at her credit union illustrates the need for Congress to act on meaningful retailer fraud reform.

Pam Swope, director of marketing and compliance for FinancialEdge Community CU, said about 300 debit cards and 30 credit cards are involved in the most recent incident. In addition, at least three other Bay City area credit unions and banks as well as at least one credit union on the west side of Michigan are part of similar investigations being conducted by the Michigan State Police and U.S. Secret Service. The credit union had fraud loss of about $9,000 in April alone, while a normal year is usually under $20,000 in fraud loss. FinancialEdge has $81.9 million in assets.

Swope said that some of the compromised cards were used at a big box retailer. She talked to a security executive at the retailer’s corporate office who told her that he “would need an army to combat fraud” in its stores.

Contrast that with requirements that financial institutions are required to train tellers to spot fraud, Swope said.

“The merchant is out no money,” Swope said. “They throw their hands up in the air and say ‘Not our problem,’ ” Swope said.

Ken Ross, EVP and COO of MCUL & Affiliates, said the problem shows why Congress needs to act to put the clamps down on retailer fraud.

“Collectively, credit unions like FinancialEdge are paying millions of dollars for fraud that they did not cause,” Ross said. “Ultimately, these fraud losses are paid for by credit unions and their members."

“It’s time for Congress to give retailers "skin in the game" so they have financial incentives to guard against fraud.”

Retail fraud has become a major issue in the last year or so in the wake of data breaches at Target, Home Depot, Michaels and other national retailers. But Swope said the issue is also about training store clerks how to spot potential fraud using cloned cards at the checkout counter.

Financial institutions have called on Congress to enact new rules for merchants. The Consumer Financial Protection Bureau has said it does not have authority to crack down on retailers.

Swope said stopping this particular fraud would have been as easy as clerks questioning a customer who brought in stacks of cards to see which one would work.

“It’s all losses that could have been prevented if merchants had better systems in place,” she said.

Swope said FinancialEdge is telling its members that if they suspect their card may have been compromised to call the credit union. She said that in this case, a member provided a tip and after connecting the dots, the credit union found a common thread in 90 percent of the recent fraud.

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2015-06-01 00:00:00