Claims and Litigation Trends in Credit Unions. June 21, 2017

Transcription

1 Claims and Litigation Trends in Credit Unions June 21, 2017

2 Percent Percent Credit Union Key Ratios January 2017 L/S = 81.2 C/A = 10.6% Loan-to-Share (Bar-L) Capital-to-Asset (Line-R) Jan. 6 Source: CUNA Economics & Statistics and CUNA Mutual Group - Economics

3 Percent Growth in CU Savings and Assets Year Average Growth Rates Savings = 6.1% Assets = 6.1% January 2016 January 2017 Growth Savings = 7.5% Assets = 7.5% Jan Savings Assets Source: CUNA Economics & Statistics and CUNA Mutual Group - Economics

4 Percent Growth in Total Loans at Credit Unions Recession March November 2001 January 2017 Recession December June Source: CUNA Economics & Statistics and CUNA Mutual Group - Economics

5 Millions of Members Total Credit Union Membership January 2017 Actual = Million Year-End Forecast Jan. Source: CUNA Economics & Statistics and CUNA Mutual Group - Economics

6 Agenda Claims and Litigation Trends in Credit Unions 1. Claims trends in credit unions 2. Litigation trends in credit unions 3. Risk management 4. What s on the horizon

7 Number of CUs Annual Net Decline in Number of CUs January 2016 January 2017 Decline = Forecast Source: CUNA Economics & Statistics and CUNA Mutual Group - Economics

8 Bond Claims Trends Bond Claim Count (frequency) Bond Claim Dollars (severity) Funds Transfer 5% Other 15% Forgery or Alteration 16% On Premises 14% Employee or Director Faithful Dishonesty Performance 14% 4% Fraudulent Deposits 31% Forgery or Alteration 3% On Premises 6% Funds Transfer 10% Other 14% Employee or Director Dishonesty 49% Fraudulent Deposits 11% Faithful Performance 7% Source: CUNA Mutual Group internal claims data

9 Employee or Director Dishonesty Examples Theft of cash from the vault by employee Theft via making fraudulent loans Theft by manipulating the general ledger

10 Percent of Bond EDD Claims at Limits 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% EDD = Employee or Director Dishonesty Source: CUNA Mutual Group internal claims data, 2016

11 Bond Claims Trends EDD or FP Key Risk Indicators Ineffective internal audit department No regular surprise cash counts No independent review No review of insider account activity Lack of transparency Risk Management Review and enforce lending policies Provide oversight on concentration levels Require ongoing training Perform regular loan file audits Review of loan exceptions and delinquency reporting Enforce key internal controls EDD = Employee or Director Dishonesty FP = Faithful Performance

12 Bond Claims Trends Bond Claim Count (frequency) Bond Claim Dollars (severity) Funds Transfer 5% Other 15% Employee or Director Dishonesty Faithful 14% Performance 4% Funds Transfer 10% Other 14% Forgery or Alteration 16% On Premises 14% Fraudulent Deposits 31% Forgery or Alteration 3% On Premises 6% Employee or Director Dishonesty 49% Fraudulent Deposits 11% Faithful Performance 7% Source: CUNA Mutual Group internal claims data

13 Bond Claims Trends Fraudulent Deposits Fraudulent Online Banking Enrollments Starts with account takeover Account enrolled for online banking Money transferred out of account, often with bill pay or account to account transfer service Mitigation Strategies Increase security contracts for enrolling in online banking Layered security Ask out-of-wallet questions for knowledge-based authentication procedures Send confirming to member when account enrolled Invest in strong authentication tools, for example geolocation tracking at IP address used to enroll account

14 Plastic Card Claims Trends Credit Cards Debit Cards 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 17% 13% 3% % 35% 30% 25% 20% 15% 10% 5% 0% 37% 24% 10% Fraud ($) Spend ($) Fraud per $100 Spend Fraud ($) Spend ($) Fraud per $100 Spend

15 Credit Card Issuer Breach Litigation What s the Latest? Target Case Suit filed in Minnesota 2014 Settled for $39 million in December 2015 Minnesota Statute allowed for defeat of Motion to Dismiss and Supported Class Certification Home Depot Case Suit filed in Georgia in later part of 2014 Motion to Dismiss Denied in part in May 2016 Home Depot seeking an interlocutory appeal to 11th Circuit

16 Credit Card Issuer Breach Litigation What s the Latest? Wendy s Breach Suit filed in April 2016 Filed in Pittsburgh federal court Motion to Dismiss filed in August Arby s Breach Suit filed in March 2017 Filed in Georgia federal court Class action suit filed by 4 credit unions and the Michigan Credit Union League Chipotle Breach Suit filed in May 2017 Filed in Colorado district court Absent a statutory cause of action like in Minnesota

17 What s on the Horizon? Plastic Card Fraud Breach Litigation Cyber and Data Security Disaster Recovery

18 Property and Business Liability Claims Trends PBL Claim Count (frequency) PBL Claim Dollars (severity) Foreclosed Building 8% Excess Liability 0% Business Liability 11% ATM 10% Other 9% Building 50% Foreclosed Building 6% Other 13% Excess Liability 6% Business Liability 10% Building 46% Contents 11% ATM 9% Contents 11% Source: CUNA Mutual Group internal claims data

19 Management & Professional Liability Claims Trends MPL Claim Count (frequency) MPL Claim Dollars (severity) Professional Liability 9% Other 9% Management Liability 15% Employment Practices Liability 32% Management Liability 12% Professional Liability 6% Other 8% Employment Practices Liability 49% Lender Liability 35% Lender Liability 26% Source: CUNA Mutual Group internal claims data

20 Credit Union Litigation Employment Practices Litigation Involvement of higher level employees (CEO, SVP) results in higher severity Geographic region impacts severity Source: CUNA Mutual Group EPL internal claims data, 2016

21 Credit Union Litigation Lender Liability Litigation Recurring themes Poor documentation Informal practices Loose communication

22 Credit Union Litigation Overdraft Fee Class Actions Continue 33% of total class action lawsuits involve overdraft fees In 2012, lawsuits alleged intentional ordering of processing of checks and debit transactions to maximize overdraft fees Current cases all involve Available vs. Actual balance issue Source: CUNA Mutual Group internal claims data, 2016

23 What s on the Horizon? TCPA FDCPA Class Actions

24 Probability of Occurrence Estimated Severity Risk

25 Actionable Tools & Resources Protection Resource Center Webinars / Training White Papers / Checklists RISK / Compliance Alerts Risk Assessments Risk / Compliance Consultations Partner Resources (EPL and Cybersecurity) Case Studies Bondability Verification

26 Emerging Risks New Unforeseen Recently introduced to industry Evolving Increased implications Migrating more broadly Well-known Incidence & Impact Becoming more aggravated Scams Technology Regulations Transactions Processes

27 Emerging risks on the radar Skimming / Shimming Phishing, Smishing & Spoofing Branch of the Future Active Shooters ADA Vendor Due Diligence Internet of Things Workplace Demographics Lending Oversight Overdraft Fee Litigation Ransomware Bitcoin / Blockchain Cybersecurity / Breaches Employee / Director Dishonesty UDAAP ACH / Booster Discrimination / Payment Card Fraud Social Media TCPA Payments Retaliation

28