Loan fraud can be:
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Fraudulent activity by or on behalf of a credit union employee
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Fictitious loans on a credit union’s books by insiders or because of fraudulent activity at a third party (such as a dealership)
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Collusion between the credit union employee and a third party
A prudent credit union conducts adequate due diligence on third parties and establishes appropriate controls over lending to deter and detect loan fraud.
Examples of fraud involving loans include:
Fraudulent Loans
Fraudulent loans can take various forms and are often the most difficult fraud schemes to uncover. A perpetrator may create loans to fictitious members or use actual member information. In some instances, fraudulent loan advances are made on a non-performing loan, or collateral is listed that does not exist. In other cases, fraud is perpetrated through a “straw” borrower.
Theft of Collection Agency Receipts and Recoveries on Charged-Off Loans
This type of fraud involves diverting funds received from a collection agency that the credit union has contracted to collect on delinquent or charged-off loans. A perpetrator may take recovered funds or receipts from the collection agency, or the collection agency itself may take the funds recovered.
Last updated on May 01, 2023
