ACH Debit Entry Fraud

Banks and financial institutions rely on technology to operate successfully and provide the best products and services for customers. With technology, though, comes the heightened risk of falling victim to wire fraud schemes that can result in significant financial losses.

One example of this is Automated Clearing House (ACH) debit entry fraud, when a bad actor executes ACH transfers from a victim’s bank account into an account controlled by the fraudster. Because of the rising popularity in using ACH transfers and strict National Automated Clearing House Association rules, banks and financial institutions have never been more at risk: According to the most recent Federal Reserve Payments Study, the number of ACH debit transfers (16.6 billion) exceeded the number of check payments (14.8 billion) for the first time in 2018. In 2000, to provide context, there were 42.6 billion check payments and only 2.1 billion ACH transfers.

“More people and businesses are using this type of transaction, but financial institutions should be aware of the risks involving ACH and the potential for fraud,” said Jerry Keup, National Underwriting Officer, Banks and Diversified Financial at Travelers. “There are steps these institutions can take to reduce the likelihood of a fraudulent incident taking place, but they should be vigilant and address any vulnerabilities seriously.”

Risk mitigation steps include, but are not limited to:

Develop methods to identify synthetic identity fraud. The Federal Reserve bank has identified red flags to aid in recognizing synthetic identity fraud. These include paying close attention to accounts that show:

  • The credit file depth is inconsistent with the customer age or other profile information.
  • Multiple identities with the same Social Security number.
  • Multiple applications from the same phone number, mailing address or IP address.
  • Use of secured credit lines or piggybacking to build credit.
  • Social Security numbers issued after 2011.
  • Multiple authorized users on the same account.

Monitoring and analytics. Using software and analytic data can often detect financial crime attempts much faster than the human eye.

But even the best controls can fall short. Travelers offers a wide range of coverages for financial institutions, including an endorsement that covers two specific ACH scenarios:

  • A fraudster opens a deposit account with a bank or credit union, then feeds that account with stolen funds from victims through ACH pulls.
  • A fraudster establishes a loan or line of credit with a bank or credit union and causes ACH transfers from victims’ accounts to repay the loan or line of credit.

Preventive measures taken or reinforced now against ACH fraud attempts can lead to positive results in the future. It’s worth the time and investment.

Travelers is committed to managing and mitigating risks and exposures, and does so backed by financial stability and a dedicated team – from underwriters to claim professionals – whose mission is to insure and protect a company’s assets. For more information, visit www.travelers.com or talk to your independent insurance agent about ACH coverage.