MADISON, Wis. — Online honor deposit and remote-deposit capture services are seeing increased adoption in credit union land and with that comes increased potential risk, according to the industry's main bonding insurer.
In response, CUNA Mutual Group is offering a pair of white papers that outline recommended best practices for credit unions to use to protect themselves against potentially uninsurable risks.
Online deposits allow members to post their own deposits and send the check in later, while remote-deposit capture allows them to scan and submit checks as online images to their credit unions.
Businesses in particular are rapidly adopting remote deposit but both technologies are seeing rapid adoption by credit unions as a way of boosting member service and competing with banks.
And each carries its own brand of risk.
For instance, with online deposit, “members typically receive immediate availability to the 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,” said Ken Otsuka, a CUNA Mutual risk manager.
How best to consider and assess risk exposures are outlined in the white paper, “Online Deposits-Reduce Risks for Your Credit Union.”
Remote-deposit capture, meanwhile, extends the benefits of Check 21-processing efficiencies and reducing the use of paper and couriers-to the small business and home banker but also with accompanying risk.
“RDC creates both operational and risk issues for credit unions, [which] must exercise due diligence to understand these risks, as well as related regulations, laws, contracts, operations and technology issues,” Otsuka said.
Potential loss scenarios include a business unknowingly sending forged, altered or counterfeit checks in the deposit image file. Ways to mitigate that and other risks are outlined in another white paper, “Remote Deposit Capture Service-Risk Implications.”
“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,” Otsuka said.
The white papers are available at www.cunamutal.com at no cost to CUNA Mutual Credit Union Bond policyholders, which includes approximately 95% of all U.S. credit unions.
–[email protected]