Are Credit Unions Kidding Themselves About Fraud?
- Jill Robb
- Sep 25, 2025
- 4 min read
Guest Editorial by Jill Robb, Founder, AttainX
Credit unions have long worn (and earned) the badge of “trusted by our members.” I’ve spoken to quite a few this year, and I have heard this statement and variations of it many times: “We only lend directly to our members as fraud risk is lower.”
But the data suggests otherwise!
This may come as a surprise to many direct lenders in this space, but credit unions may be quietly carrying far more fraud exposure than they realize.
According to the NCUA[1]net charge-offs among federally insured credit unions rose to 0.80% in Q4 2024, up 19 basis points year-over-year, and stayed elevated into 2025. Auto loan delinquency also held at 0.82% in Q2 2025. But charge-offs don’t just reflect struggling borrowers. Some of the charge-offs that you may be seeing are actually fraud in disguise. Yet all too often, credit unions lump fraud-driven losses into “credit risk,” masking the real story of what is actually happening.
FICO’s latest Credit Insights report[2] reinforces this trend. The average FICO Score dropped to 715 in 2025, with auto loan delinquency up 24% since 2021 despite auto loans being the top priority in consumers’ payment hierarchy. If borrowers are more likely to pay their car loan than any other debt, yet auto delinquencies are climbing, that suggests more than affordability strain. It signals hidden fraud risk. In short, losses are rising amongst credit unions and it’s not just credit risk causing it.
Direct Lending Does Not Equate to Fraud Immunity
Direct-only lenders often take comfort in knowing their members personally. I’m sorry to alarm you, but today’s fraudsters are not strangers in a distant marketplace. They’re synthetic identities that look like clean, thin-file members. They’re account takeovers pulled off in the call center by exploiting trust. They’re scam-enabled first-party fraud that looks like delinquency.
A 2025 Alloy survey[3] of nearly 500 fraud and risk leaders found 60% of financial institutions, including credit unions, reported rising fraud. For mid-market banks and credit unions, fraud skewed to digital and contact-center channels, with account takeover and identity theft topping the list.
Meanwhile, younger members, especially Gen Z, are the most volatile credit group. FICO found that 14% of Gen Z borrowers saw a 50+ point score drop in a single year, and student loan delinquency has been recorded at record highs. And the bad news is that these are exactly the kinds of thin-file, affordability-stressed profiles most vulnerable to synthetic identity fraud.
Compliance Doesn’t Equal Protection
Yes, every credit union has a Customer Identification Program (CIP). But CIP rules only require a “reasonable belief” that you know your customer. That often translates to document collection and database checks. What it doesn’t mean is document authentication, income or employment verification or fraud checks. In fact, recent regulatory changes, like the 2025 TIN collection exemption, highlight just how flexible, and potentially weak, member onboarding can be.
Fraud Risk Exposure Isn’t Just Member-Related
Fraud exposure doesn’t stop with members. In the auto lending space, it can sometimes begin at the dealer level. Many credit unions still rely on manual, paper-heavy processes to onboard dealers, which is slow, error-prone, and vulnerable to manipulation. It’s not uncommon for “fictitious dealers” to be set up on empty lots, posing as legitimate businesses when in fact there’s no dealership at all.
This creates a double exposure: credit unions not only risk onboarding fraudulent members, but also fraudulent dealers who funnel in bad loans.
Heidi McMillen, Chief Revenue Officer at OttoMoto, points out how OttoMoto is helping to mitigate against this type of dealer-perpetrated fraud:
“Digital dealer onboarding changes the game for credit unions. By managing the entire process digitally, lenders can reduce errors, cut onboarding time, and, importantly, integrate fraud detection. Through our partnership with Point Predictive, every dealer application can be screened for fraud red flags before a single loan is funded.”
The Real Cost of Fraud
Fraud costs far more than the face value of the charge-off. Once you account for investigation, write-offs, recovery, and lost member trust, credit unions are being hit for a lot more. For many credit unions already working on thin margins, ignoring fraud is an expensive illusion.
Justin Davis, VP of Product at Point Predictive frames it this way: “Credit unions have a golden opportunity to tighten their fraud defenses. Our data shows that early-stage fraud checks can drastically reduce charge-offs and keep institutions ahead of the curve. By tightening the screws on fraudsters, it also allows credit unions to enhance the experience for the members they actually want to serve.”
It’s Time For Credit Unions To Stop Kidding Themselves
Fraud is not just a “bank problem.” It’s not just a third-party lending problem. And it doesn’t vanish because you call your customers “members.” The uncomfortable truth is that credit unions face the same fraud vectors as every other lender, and they’re continuing to rise.
If credit unions want to uphold their reputation as trusted community stewards, they must acknowledge the fraud already in their portfolios, separate fraud losses from credit risk, and invest in modern identity verification and fraud solutions.
Trust isn’t something credit unions can assume anymore. It’s something they have to prove.
Jill Robb is a strategic growth consultant and Fractional C-Suite executive with over 20 years’ experience as a company owner and senior leader. She advises fintech, credit unions, insurtech, and banks on marketing strategy, revenue growth, market expansion, and long-term strategic direction. Drawing on her entrepreneurial track record and deep industry insight, Jill helps leadership teams unlock new opportunities and achieve measurable business results.
