Filed under: Fraud Prevention, Regulation CC, check holds, credit unions, money orders
At my most recent fraud prevention seminar, I was asked about putting holds on money orders. As I stood there, I wasn’t sure how to answer. When that happens, I’ll usually have people contact me by email after the seminar and then I can get back to them on the issue. In this case, it also makes great blog fodder.
Money orders are strange birds. Some are treated like cashiers checks and others are treated like ordinary checks.
U.S. Postal Service money orders are straight-forward because they come from a government agency. Regulation CC requires that funds from U.S. Postal Service money orders must be made available on the first business day following the banking day of deposit (“next-day availability”). This doesn’t help if you are faced with bogus Postal money orders. Any instrument requires close scrutiny nowadays.
UCC 3-104(f) says that a check might still be just a check even if it says “money order” on it. The comment to this section makes the distinction between a money order as a normal check or a money order as a certified, cashier’s or teller check by who the parties are to the instrument. If the purchaser of the money order is the drawer, then it’s a normal check and you can follow the normal Regulation CC holds. If the drawer and the drawee are the same bank or branches of the same bank, then the money order is treated as a cashier’s or certified check. If the money order is drawn by a bank on another bank or payable at or through a bank, it’s treated as a teller check. Cashier’s, certified and teller’s checks have the same availability requirements as U.S. Postal Service money orders, that is, next-day availability.
In the face of bogus instruments of all kinds that credit unions face today, this is small comfort. A credit union needs to examine these types of instruments that it receives over the counter very carefully.
The following is an article scheduled to appear in the upcoming edition of The WWR Letter:
Peer-to-Peer Lending: A New Banking Alternative
By: Benjamin R. Bibler, Esquire
Peer-to-peer lending is a new banking alternative that involves average people lending money directly to borrowers in order to cut out the banking middlemen. Lenders are matched up with potential borrowers through Internet companies that derive their profits through percentage-based transaction fees. The lure to investors is the opportunity to earn above average returns on their money. The appeal to borrowers is the opportunity for people with poor or damaged credit to receive loans at a lower interest rate than available through bank loans and high-interest credit cards.
Though new sites are spawning up at a steady pace, Zopa Ltd. (“Zopa”) and Prosper Marketplace Inc. (“Prosper”) are the industry leaders. Both companies offer loans without having to deal with the expense or problems associated with having a physical structure for their clientele to visit.
Though their objectives are similar, Zopa and Prosper approach the concept of peer-to-peer lending through different means. Zopa, which is currently available in the United Kingdom and in the process of establishing operations in the U.S., examines credit ratings and personal information provided by the prospective borrower and then, in turn, offers loans at varying interest rates to those who fit a specific criteria. Prosper uses a strategy similar to eBay, which is no coincidence as Prosper is backed financially by Pierre Omidyar, the founder of eBay Inc. Prosper also examines personal information and credit ratings; however, Prosper uses this information to develop a profile of the prospective borrower that the investors can view. Prosper then puts the responsibility on the investors to make an informed decision as to whether or not they wish to loan the requested funds. Since Prosper lenders are responsible for making their own decisions, investors are encouraged to utilize “lending groups” to help police themselves in order to avoid fraud and ill-advised loans.
The fundamental approach utilized by these Internet loan companies is rather simple: charge as much interest as necessary to cover defaults and still provide an enticing rate of return for investors. Since risk is the main concern with unsecured loans, diversification is used to manage that risk. To lessen this risk, Zopa divides investors’ funds among numerous borrowers with different risk profiles to reduce the likelihood and effect of default. Prosper encourages their investors to use the same precautions. When a default does occur, the major credit bureaus are notified and collection agencies are utilized in order to seek repayment.
Some experts consider peer-to-peer lending too risky for both borrowers and lenders, especially considering the absence of Federal Deposit Insurance and regulations that normally govern the lending process. Others believe Zopa and Prosper will turn the mainstream lending industry into a more competitive and profitable business for all involved. Either way, it’s easy to imagine problems stemming from any organization that requires strangers to supply their private financial information online in order to arrange loans with one another without government protection.
Benjamin R. Bibler is an Associate in the Litigation & Defense department of the Pittsburgh office. He can be reached at (412) 338-7118 or bbibler@weltman.com.
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The following is an article reprinted with permission from the WWR Letter:
The Americans With Disabilities Act: Requirements for Credit Unions
By: Raymond F. Moats, Esquire
The Americans with Disabilities Act (“ADA”) was enacted to prohibit discrimination and ensure equal opportunity for persons with disabilities. The ADA is a Federal civil rights law that gives protection to persons with disabilities similar to the civil right protections provided to persons based on race, color, age, religion, sex and national origin. The ADA states that people with disabilities are entitled to “the full and equal enjoyment of the goods, services, facilities, privileges, advantage and accommodations” that a private business provides to its customers. Credit unions are affected by Title I, which prohibits employment discrimination against persons with disabilities, and Title III, which require “places of public accommodation” and “commercial facilities” to be designed and built so that they are accessible to persons with disabilities.
The employment provisions of Title I apply to private employers. The ADA prohibits employment discrimination against “qualified individuals with disabilities.” A “qualified individual with disabilities” is a person who has legitimate skill, experience and education for the position. The person must also be able to perform the essential functions of the position with or without a reasonable accommodation. Reasonable accommodation is any adjustment to job requirements or environment that will enable a qualified person with a disability to perform essential job functions. The test to determine whether a reasonable accommodation is appropriate is whether the accommodation will provide an opportunity to a person with a disability to achieve a similar level of performance as a person without a disability. A person is considered to have a “disability” if the person has a physical or mental impairment that substantially limits a major life activity. A few of the impairments of major life activity are conditions that affect seeing, hearing, speaking, walking, breathing and learning. The impairment does not include minor, non-chronic conditions of a short duration such as a broken arm. Employers must ensure the their employment policies and procedures do not discriminate against an individual with a disability in any employment practice, including job application procedures, hiring, firing, advancement, compensation and training.
Title III defines a public accommodation as a private business that provides goods or services to the public. All businesses that provide goods or services to the public must provide equal opportunity for customers with disabilities. Businesses are expected to make changes to their facilities that are “readily achievable” or that do not constitute an “undue burden” to enable individuals with disabilities to access the goods and services of the business. Businesses are required to make new facilities accessible, remove barriers from existing facilities and take steps to ensure effective communication with customers. All new public accommodations must comply with the ADA Standards for Accessible Design. This includes all aspects of the new building from parking lots to door handles. Businesses with existing buildings are required to remove existing barriers. The ADA contains a flexible rule for removing barriers. Businesses are required to remove physical barriers if the removal will improve accessibility and it is “readily achievable” to do so. Barrier removal is considered “readily achievable” if it can be easily completed, without much difficulty or expense. The evaluation of whether barrier removal is “readily achievable” is on a case-by-case basis. The difficulty of removing the barrier and the business’ ability to pay for the barrier removal are considerations. If a business has numerous barriers, the business is expected to prioritize the barriers and correct the problems as resources permit. Businesses should give first priority to making the building accessible.
The ADA was enacted to make businesses more accessible to people with disabilities. It was not intended to create a burden on businesses. This article is intended as a short overview of the Americans with Disabilities Act. To ensure compliance with the ADA, credit unions are encouraged to seek the advise of counsel when establishing employment standards or considering the renovation of a building.
Raymond Moats is an Associate in the Collection Support and Probate departments of the Grove City office. He can be reached at (614) 801-2767 or rmoats@weltman.com.
Yesterday, we wrapped up our sessions on Fraud Prevention. We did two seminars sponsored by CUNA and the Ohio Credit Union System, one in Columbus and one in Cleveland. The OCUS (it will always be the league to me) did terrific work in coordinating the sessions. Here’s a picture of Joshua Reams and Dawn Pagon manning the registration table.
Josh started doing the sessions last year. It is a pleasure working with him as he’s very organized and professional. Dawn is part of our team at WWR. As a lifelong credit union person, Dawn is a natural in her job of marketing to credit unions.
Participants in both sessions had lots of questions and seemed to enjoy the seminar. As I said to both audiences, if they took away nothing else, I felt it was important that front line staff be given a threshold figure for checks and other instruments that they receive over-the-counter where they must have a second person review the item. While a credit union faces fraud on all fronts from checks to home banking to credit cards to fake loans, it’s so important to stop the scam artist or mule that tries to pass a bogus item for instant or relatively instant value in return. The figure that the credit union sets should be high enough not to shut down the teller line while low enough to fight losses in a meaningful way.
Other ways that credit unions can protect themselves is through investing in member education. It doesn’t have to be much. Newsletters, fliers in the lobby, signs– all of these things can help. We need to help members to understand not to respond to Nigerian emails, to be suspicious when someone who buys something in an online auction gets a check for more than he asked and just to recognize that cashing a check for someone expecting a cut in return can be aiding someone in committing a crime. Directing members involved in these types of transactions to a person at the credit union trained in fraud prevention can help stop this type of fraud.
Filed under: credit unions, links, marketing, new media, podcast, seminars
New media can be hard to explain. Often when I’m talking to credit unions or credit union leagues about podcasting, they think about podcasting in terms of an instructional seminar. It’s not. But there are plenty of things that are. Wikipedia, that reasonably accurate new media resource, helps us define podcasts versus webinars.
In essence, for webinars and web conferencing, think seminars and meetings. For podcasts, think radio and episodic content on whatever you want to listen to. Webinars and web conferencing are about conveying hard information, usually that you pay for, in real time. Although, sometimes you can buy recordings of webinars that you can listen to at your leisure. Podcasts can be informative or entertaining or both. Almost all of them are free. Podcasts are never live.
The most important point that I want to make is that podcasting doesn’t compete with webinars and web conferencing. Podcasting competes with radio. People listen to webinars and web conferences like they would listen in the classroom. People listen to podcasts in their cars or while relaxing. In podcasting there’s no live interaction.
That being said, and to muddy the water, some professors are putting their college lectures out as podcasts. This greatly helps students who miss a lecture. The episodic nature of the lecture series works as a limited run podcast. In the same manner, if you gave a series of webinars on a topic and then put them out on iTunes as a podcast series later, it would blur the line more. At that point, you could turn a webinar into a podcast, but you can’t truly turn a podcast into a webinar.
So why are we bothering with such semantics? It is an important distinction because if a vendor that sells seminars to credit unions thinks of podcasting in the same manner as it thinks about giving seminars, podcasting seems to be undesirable. Think about it: if part of your business model is to charge a fee for something (the webinar), then giving that information away for free doesn’t much help. Once you understand the difference between webinars and podcasts, you can see that this isn’t the case at all, however. The live interaction involved with the webinar and the real time streaming of that information is what creates the instructional value for which people are willing to pay (if the content is good). Podcasting, then, can complement and promote more in depth material to be given later in a webinar or a live seminar.
Filed under: podcast
The following is an article reprinted with permission from the WWR Letter:
Podcasting: A New Marketing Tool for Credit Unions
By: Robert Rutkowski, Esquire
Imagine having your own radio show where you could reach your membership anytime they had a free moment to listen to what you had to tell them. That’s what marketing through podcasting can offer to credit unions. Podcasting is simply making a sound recording, distributing it via the Internet and attaching a Really Simple Syndication (RSS) feed to it. It’s not hard to do and it can be done cheaply without too many sophisticated tools.
Credit unions believe in member education. There are plenty of things to talk about with your members, such as: how to avoid scams and fraud, how to effectively save for retirement or even what to look for when buying a new or used car. An inventive marketing person could record a podcast once a month without much difficulty. The beauty of a podcast is that any member with a computer (you don’t even need an iPod) can listen to the credit union’s podcast, on his or her own time.
If the credit union has its own web site, it can host the podcast on the site itself. If not, a credit union can find hosting for their podcast for as little as $5/mo. One of the leading podcasting hosts is Libsyn. Uploading through Libsyn is done through a web browser. This process is quick and easy and it automatically creates an RSS feed.
At the most basic level, all a person needs to create a podcast is a microphone and a computer. Of course, you can spend money on good audio equipment if you want, but it’s not essential. What’s important is to get out the credit union’s message. What’s more, outstanding recording software is open source (that means free!). I use Audacity and I recommend it for podcasting because it’s free and very powerful.
As an additional marketing tool, podcasts can easily be burned onto CDs and handed out to members as branded marketing materials. The costs of making such a CD are probably less than what the credit union spends on other giveaways. The CD is much more focused, however, in getting the member to think about the credit union and even gives the member information he or she can actually use.
When we started the Current Issues in Credit Union Podcast, we used only a little bit more equipment than what I describe here. We had to use two computers because of the fact that the hosts use Skype to communicate across the country with each other. Since we started, we’ve added other sound equipment (a mixer and compressor) as well as effects such as bumper music, but the costs are still well within an average credit union’s marketing budget.
For an in-depth tutorial on podcasting, see the excellent video made by Kevin Rose and Dan Huard at: http://revision3.com/systm/podcasting/. Credit unions should not overlook podcasting as a marketing tool. It’s a fresh approach, it can be done well cheaply and it can reach a broad audience. What more could a credit union ask?
Robert Rutkowski is the Managing Partner of WWR’s Credit Union department. Located in the Brooklyn Heights operations center, he can be reached at (216) 739-5004 or rrutkowski@weltman.com.
Filed under: biometric security
The following is an article reprinted with permission from the WWR Letter:
Biometric Security: On the Horizon
By: John J. Grieger, Esquire
Biometrics can be defined as the measurement of biological characteristics that are distinct to each person and that are used in identifying that person. Biometrics can identify an individual’s fingerprints, face, iris, voice or hand shape.
A common biometric application is the fingerprint. The fingerprint is reduced to digital data, making duplication extremely difficult. Personal identification numbers and identity cards can be lost, stolen, or falsified. However, a user’s fingerprint is always “on hand.” Fingerprint biometrics is safe, convenient and accurate.
Biometric technology can help cut down on identity theft and the great loss that it causes to banks and consumers. Unlike a system based on Social Security numbers, a biometric system puts identity information into a format that is nearly impossible to compromise.
Biometrics need not replace current means of verifying a consumer’s identity. It can be used to supplement existing means. Indeed, the Federal Financial Institutions Examination Council (“FFIEC”) recently published Authentication in an Internet Banking Environment. In the report, the FFIEC writes, “Where risk assessments indicate that the use of single-factor authentication is inadequate, financial institutions should implement multifactor authentication…to mitigate those risks.”
The banking industry is beginning to feel the impact of biometric technology in point-of-sale transactions. Retailers seeking refuge from the high transaction fees paid to credit and debit card issuers can use biometrics to allow a customer to pay for goods with the touch of a finger. The customer provides his bank account information and fingerprint to the store and then can pay by touching a pad at the cash register. No credit card, check, or cash changes hands.
Internationally, bank customers and the banks themselves have begun to accept biometric technology. Three major banks in Japan have installed biometric readers on their ATMs, but some banks have balked at such devices. Banks in Chile and Colombia use fingerprint readers for teller and ATM transactions. South Africa’s banks are actively updating their ATM’s with fingerprint readers. A survey of seven European nations found that 57% of consumers would be more likely to change to a biometric-friendly bank*.
The U.S. has been slower to embrace biometrics, with some citing fears of identity theft, Big Brother privacy intrusion, and even hygiene concerns. One analyst noted that American banks have begun to use biometrics for their internal employee security, but that full acceptance of biometrics by U.S. banks is years away, “if not a decade or more.” However, in a recent article** an author stated that Utah-based Zions Bank has launched a new biometric check-cashing product to consumers who wish to cash payroll and government checks. Twelve branches in Utah and Idaho will be the first to pilot the program. This marks the first time a major financial institution has used a biometric tool to provide check-cashing services.
The trend toward the use of biometric security is becoming a part of everyday life abroad. As the cost of biometric applications declines along with the public’s reluctance to use biometrics, American banks and consumers will likely recognize the convenience and increased security offered by biometrics and they will become more common in the U.S.
John J. Grieger, Jr. is an Associate in the Bankruptcy department of the Chicago office. He can be reached at (312) 786-9676 x 29814 or jgrieger@weltman.com.
*“Biometrics may encourage Europeans to switch banks, research suggests”, Computer Business Review Online, May 23, 2006, http://www.cbronline.com/article_news.asp?guid=1750817C-B9E1-4BB1-9BF0-873770291015
**“In Brief”, Ohio Banker Direct, July 12, 2006
We’re suffering the effects of a good old-fashioned blizzard today in Cleveland. It’s just sort of disaster conditions. This is kind of ironic, because I’m doing a webinar today on disaster recovery. What a great day to blog about some tips on dealing with a disaster.
A key part of disaster planning is using your time now to work out your plan so during the crisis you have something to rely on. Here are some things to think about:
1. Nail down your alternate operating location. Make sure you have the necessary space and power and that you can do your data processing from that location. Resolve all zoning issues in advance. If you’re relying on putting up a trailer in the parking lot, make sure you’re allowed to do that. If you are going to operate out of a location you’ve never used, make sure it’s zoned for what you do.
2. Consider Shared Branching. Many credit union managers I’ve talked to who have gone through a disaster highly praise shared branching as a way to offer member services after a disaster event.
3. Evaluate your Insurance coverage annually. Here’s some common riders:
A. All risk property damage
B. Business interruption
C. Extra Expense Ins. (replacement value not salvage)
D. Valuable Papers
E. Accounts Receivable
F. Electronic Data Processing
G. Earthquake, flood
4. Aspire to have a 24 hour turn around on your data processing. While it is difficult for most credit unions to afford a hot site that is effectively a real time backup, this is the ideal. If nothing else, you should be doing your back ups from disk to disk then back it up again from disk to tape.
5. Store the Disaster Recovery Plan where people can get to it. A plan should not be so short that key procedures are missing. It should not, however, be so long that people don’t use it.
Disaster Recovery is a hot topic right now and for good reason. Planning today can save much heartache later. Fortunately, we’re facing down our blizzard quite nicely. While there are people out because of the weather, all our offices are open and everything is functioning. That’s how you want it to be.
Filed under: seminars
The seminar season has started to pick up here in our Credit Union department. Each year, WWR teams up with CUNA and the Ohio Credit Union League to present a series of quarterly seminars on credit union legal issues. Next week, Rob will be presenting a seminar on “Fraud Policies and Prevention” on February 20 in Dublin, OH and on February 21 in Cleveland, OH.
Fraudsters seem to be working overtime to overcome credit unions’ security measures. This seminar is geared toward operations, compliance, lending and risk management staff at credit unions and discusses strategies on how to steer clear of the latest scams- from stolen cards to fraudulent checks to ACH transactions. The seminar also covers the handling of identity theft issues, fraud policies and procedures that credit unions should have in place, reporting requirements, recognizing and resolving fraud and understanding the Bank Secrecy Act and check fraud requirements. If you’re in the Dublin/Cleveland areas, you should consider joining us! For more information visit: http://training.ohiocreditunions.org and choose Event Calendar.
Rob will also be presenting a webinar on February 22 to the Illinois League of Credit Unions on the Right to Financial Privacy Act, which is part of their Quick Bites seminar series. If you’re interested in listening in on that webinar, register here.
