It’s David vs. Goliath in Austin’s U.S. District Court as Buckholts State Bank recently filed suit against Navy Federal Credit Union, alleging that the credit union has “inadequate ‘know your customer’ procedures” to prevent check fraud.
In a scenario all too familiar to community bankers, Buckholts State Bank asserts that one of its customers had a check stolen from the U.S. Mail. Shortly thereafter, Navy Federal Credit Union cleared the stolen check after it was deposited into a fraudulent account. After making a claim for reimbursement, Buckholts was denied by the Navy FCU. In a deposition, Buckholts learned that Navy FCU had flagged the account as fraudulent and closed it, despite denying the claim by the bank.
The deposition further revealed that, within one department of Navy FCU, the average single check fraud transaction is $10,000 and that approximately 19,200 fraudulent checks are transacted each year, affecting more than 100 downstream banks.
Navy FCU also revealed that, due to resource constraints, it does not review checks for fraud unless they are more than $25,000.
“The facts of this case would be shocking if the story wasn’t so familiar to every community banker,” said IBAT President and CEO Christopher Williston. “The simple truth is that the nation’s largest banks and credit unions have turned a blind eye to criminal behavior.”
The lawsuit seeks to create a class action against Navy FCU for harm against other financial institutions. To learn more, please see the full lawsuit filing online.
