Rising Fraud Threats for Small Credit Unions: Trends from the Last Decade
Fraud on the Rise at Credit Unions Under $1B
Fraud has become an increasingly pressing issue for U.S. credit unions – especially smaller institutions. The vast majority of credit unions are relatively small (about 97% hold under $1 billion in assets) yet they are not insulated from fraud. In fact, recent years have seen explosive growth in fraud cases at credit unions. For example, credit unions filed 15,432 suspicious activity reports on consumer loan fraud in 2023, a 419% increase over the last decade. Industry surveys likewise show that fraud has become a top challenge: nearly 60% of banks, fintechs and credit unions reported losing over $500,000 to direct fraud in 2023. These trends make it clear that no credit union is “too small” to be targeted by fraudsters.
Multiple factors have contributed to this rise in fraud. Massive data breaches over the past 5-10 years have dumped troves of personal information onto the dark web, making it easier for criminals to impersonate victims. The shift to EMV chip cards around 2015 pushed fraudsters from in-person card fraud to remote channels like online and phone transactions. More recently, the COVID-19 pandemic and surge in digital banking created new opportunities for identity thieves and scammers. Overall, consumer losses to fraud jumped 30% from 2021 to 2022 (reaching $8.8 billion), and financial institutions end up paying about $4 in costs for every $1 of fraud loss once you factor in recovery efforts, remediation, and reputational damage. For small credit unions with tighter resources, these hidden costs can hit especially hard.
Call Center Social Engineering: A Growing Risk
One of the most vulnerable channels for many credit unions is the call center. Fraudsters have learned that a friendly phone call can be the weak link in authentication. Using stolen personal data (from the many breaches in recent years), scammers call member service reps and pose as legitimate members – a classic form of social engineering. Credit unions pride themselves on member service, so well-meaning reps may give a phony caller the benefit of the doubt to avoid being rude. Criminals exploit this trust, persuading staff to reset passwords, provide account info, or execute transactions they shouldn’t. One common ploy is convincing an agent to perform a password reset or send a one-time passcode, which the fraudster then uses to take over the account.
Call center fraud has surged alongside major data breaches. Industry experts observed that suspected call center fraud attempts jumped from 2% of fraud cases in 2014 to 13% in 2015 – a sixfold increase following the large-scale card breaches and the shift to card-not-present fraud. And it’s only gotten worse: by 2017 the overall voice-channel fraud rate had grown 350% since 2013. Pindrop’s annual report noted that in 2017 about 1 in every 638 calls into call centers was fraudulent. This trend shows no signs of slowing, especially as criminals adopt new tactics like caller ID spoofing (ANI deception) and even AI-powered voice deepfakes to impersonate members.
Credit union call centers are squarely in the crosshairs. While big banks tend to see higher absolute fraud volume, credit unions face a significant share of attacks – and often from local fraudsters. Studies find that credit unions experience roughly half the phone fraud rate of large banks, but about 80% of fraudulent calls to credit unions originate domestically (versus ~43% for banks). In other words, smaller institutions are often targeted by criminals within the U.S., potentially those familiar with the local community or credit union practices. Common red flags include callers who rush agents, or a series of rapid profile changes (e.g. address change, then requesting a new card and PIN) – a “signature move” of account takeover rings. Educating staff to spot these patterns is critical. However, given the sheer volume and sophistication of calls, relying on human vigilance alone is risky.
Account Takeovers and Synthetic Identities
Beyond call centers, credit unions are grappling with a wave of identity-based fraud that has evolved over the past decade. Two of the most damaging forms are account takeover (ATO) of existing accounts and synthetic identity fraud in new accounts. In an account takeover, a fraudster gains unauthorized access to a member’s account – often by using stolen login credentials, intercepted one-time codes, or by socially engineering a call center rep as described. Account takeover incidents have skyrocketed recently. A 2021 Javelin Strategy study reported that ATO losses in the U.S. reached $11.4 billion in 2021, a 90% increase from the prior year. Criminals use whatever means available (phishing emails, malware, phone scams) to hijack accounts, then transfer out funds or make fraudulent purchases before being detected. The problem is amplified by the abundance of leaked personal data online, allowing criminals to bypass knowledge-based security questions with ease.
Equally troubling is the rise of synthetic identity fraud, where perpetrators create fake identities by combining real data (like a stolen Social Security number) with fictitious information. This is now considered the fastest-growing financial crime in the U.S., even outpacing traditional ID theft. Fraud rings use synthetic IDs to apply for membership and loans, often at smaller institutions that may have more manual or less sophisticated onboarding checks. Losses from synthetic identities are enormous – an estimated $20 billion was lost in 2020 across U.S. banks and credit unions due to this method. Fraudsters play the long game: they will nurture a synthetic identity’s credit score for months or years (sometimes taking ~18 months before “busting out” with major loans). The average hit per synthetic profile is around $85,000–$90,000 in stolen funds, making even a handful of successful cases extremely costly.
For credit unions under $1B, synthetic fraud can be especially hard to recognize. Oftentimes, these fake borrowers look like just another community member on paper – until the loan defaults. Many institutions mistakenly write off synthetic loan defaults as normal credit losses, missing 85–95% of the synthetic fraud instances because legacy detection systems don’t flag them. This means the true scale of fraud risk is underestimated in internal reports. In one analysis, a mid-size FI discovered that 15% of its accounts were tied to synthetic identities after a thorough review. Without proper tools, a small credit union might not realize a chunk of its loan portfolio is actually phantom borrowers. This lack of visibility and categorization makes it hard to grasp the scope of the problem– feeding the false sense of security that fraud “isn’t a big issue” when in reality significant losses may be hidden in plain sight.
Common Vulnerabilities in Smaller Institutions
Why are small and mid-sized credit unions particularly at risk? One reason is resource constraints – limited budgets and IT staff can lead to outdated security infrastructure. A community credit union might rely on basic password authentication and security questions for caller verification, which today offer little challenge to a determined fraudster armed with stolen data. Knowledge-based authentication (e.g. “What’s your mother’s maiden name?”) has been steadily undermined as personal details are widely available from breaches and social media. If authentication processes don’t adapt, fraudsters will find the path of least resistance into accounts, and right now that path often runs through smaller institutions with less robust controls.
Another vulnerability is the very culture that makes credit unions special – a focus on personal service and trust. Smaller institutions often know their members and may have a false confidence that “we’d recognize if something was wrong.” In practice, fast-moving fraud schemes can fool even a diligent employee. Human error and social engineering remain huge risks: as one 2024 security outlook noted, people are “a much more vulnerable attack surface” than technology, and attacks exploiting human trust (via phishing, vishing, etc.) have exploded in frequency. Yet some credit union leaders still cling to the myth that being small or local keeps them off criminals’ radar. This “too small to be targeted” mindset persists in many small businesses and credit unions, leading to complacency. In reality, cybercrooks consider smaller firms easier targets with weaker defenses. Fraud rings cast wide nets and will just as readily hit a 10,000-member credit union as a big bank if they perceive an opening.
Limited compliance and risk staffing also play a role. Larger banks have teams dedicated to fraud prevention and advanced analytics; a credit union under $1B might have one fraud officer (or none at all) juggling multiple roles. Manual processes – from account monitoring to ID verification – leave gaps that sophisticated fraud can slip through. When workloads are high, alerts can be missed and anomalies overlooked. And when fraud does occur, smaller institutions may choose not to publicize incidents (to avoid reputational harm), further masking the true frequency of attacks. All these factors contribute to underestimation of fraud risk: leadership may only see the few losses that were caught, not the near-misses or undetected incursions.
Facing the Fraud Challenge with Stronger Authentication
The rising tide of fraud calls for a proactive response – and many credit unions are now awakening to the need for stronger defenses. A key strategy is investing in modern authentication and fraud detection tools that can scale security without sacrificing member service. This is where technologies like voice biometrics have entered the conversation. Voice biometric authentication allows a credit union to verify callers by their unique voiceprint, essentially using “who you are” (your voice) rather than just “what you know” (PINs or security answers). This has huge potential to shut down call center imposters. Even if a fraudster knows a member’s SSN and address, they can’t easily fake the member’s voice. By screening calls with voice biometrics, credit unions can automatically flag when a caller’s voice doesn’t match the enrolled voiceprint of the real member – stopping social engineering in its tracks.
Importantly, these solutions can improve security and convenience at the same time. Members don’t enjoy answering a litany of identity questions each time they call. With a biometric system (such as the one offered by GetConfirmed.io), the caller’s voice can be passively verified in seconds, often reducing call authentication time from minutes to under 10 seconds according to industry experts. That means a smoother experience for legitimate members and an extra barrier for bad actors. In fact, fraud prevention consultants are beginning to urge all credit unions – big and small – to add biometrics to their toolbox. As one expert put it, “Every credit union out there should have biometrics in their strategic plan. It is the wave of the future.”
Of course, no single technology is a silver bullet. A multi-layered approach works best: combining member education (so they don’t fall for phishing or give out OTP codes), employee training (to recognize social engineering cues), and advanced monitoring of account activity for unusual patterns. Multi-factor authentication (MFA) should be enforced for online and mobile banking logins, and new tools are emerging to thwart MFA bypass attacks as criminals evolve. But for the especially thorny problem of call center fraud, voice biometrics has quickly become a standout solution. It directly addresses the human element – verifying identity through something inherent to the member – and greatly reduces reliance on memory-based Q&A that attackers have learned to game.
Conclusion
Fraud trends over the past 5-10 years make it clear that small credit unions face many of the same threats as larger institutions – sometimes more. From aggressive social engineering in call centers to stealthy synthetic identities draining loan portfolios, the risk is real and growing. Underestimating this risk is a mistake that can lead to serious financial and reputational damage. The good news is that awareness is rising. By learning from industry trends and adopting modern fraud-fighting tools, credit unions under $1B in assets can protect themselves and their members while still delivering the personal service that sets them apart. The era of “it won’t happen to us” is over – even the smallest cooperative must stay vigilant and invest in fraud defenses. With layered security and innovations like voice verification in place, credit unions can close vulnerabilities and continue to thrive in the face of evolving fraud threats.
Sources:
- NCUA Report – Credit Union Asset Distribution
- FinCEN SAR Data – Fraud Increase in Credit Unions
- Alloy Fraud Benchmark Report 2024
- IDology Fraud Report 2015 – Call Center Fraud Spike
- Pindrop Voice Fraud Analysis (2018)
- Credit Union Times – Call Center Fraud Tactics
- Credit Union Times – Service Culture and Fraud Risk
- Javelin Strategy – Account Takeover Losses
- ABA Banking Journal – Synthetic ID Fraud Losses
- TransUnion/Datos – Synthetic Fraud Trends
- Jade ThirdEye – Small CU Financial Crime Risk
- CU Times Security Outlook 2024
- NAFCU Podcast – Biometrics in Fraud Prevention
- Wolters Kluwer – Dangers of Underestimating Fraud
In the rapidly evolving world of credit unions and banking, staying ahead with robust authentication strategies is not just an option; it’s a necessity. Confirm is here to guide you through this journey, offering innovative solutions tailored to meet your specific authentication goals. Whether you’re looking to enhance security, streamline processes, or improve customer satisfaction, our cutting-edge technology is designed with your needs in mind. Interested in seeing how Confirm can transform your authentication approach? Reach out to our sales team for a personalized demo and take the first step towards a more secure and efficient future in the banking and credit union industries.