Customer on the hook for $88,593 fraud

Mike Calcutt was shocked to learn that nearly $90,000 had been spent from his home equity line of credit. 

He was more shocked when Affinity Plus Federal Credit Union said he would have to pay back the $88,593, even though he had reported the fraud as soon as he received his bank statement.

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Calcutt, who lives in Minnesota, is among a growing number of victims of HELOC fraud, in which scammers either open home equity lines of credit in other people's names or withdraw money from existing accounts by impersonating the account owners.

As Jay MacDonald wrote at BankRate.com in 2008:

Now that anti-fraud software has shored up credit card accounts, HELOCs have become the next tempting target for theft. Thieves gain access to your home equity pool either through an existing HELOC or by opening one in your name at the bank of their choice. Ironically, you may have more trouble opening a HELOC than identity thieves, who can manipulate the loan documents to suit their purpose.

This is how the scammers got into Calcutt's account, Dan Browning reports in the Star Tribune:

Turns out, Affinity Plus let someone set up telephonic banking privileges on his account, Calcutt said. Then someone executed a series of nine transfers -- each just below $10,000 -- from his credit line to his savings account. And finally, someone got the credit union to wire the money to a drop account in Boston, from which it has disappeared.

Calcutt pointed out that the faxes to the credit union authorizing the wire transfers should have raised a red flag, because the headers indicated they came from someone else: "a person whose criminal record includes convictions for second-degree aggravated robbery, terroristic threats and check forgery," according to the Minneapolis newspaper. Plus, Calcutt's signatures on the faxes are exact copies of the signature on his HELOC agreement, indicating that someone used a computerized scanner to copy the signature from public records.

But not only did the credit union not take responsibility for the fraud, it also dinged Calcutt's credit for not paying while the amount was in dispute.

The credit union refused to comment. Calcutt and his wife, Sandra, have filed suit against Affinity Plus, alleging negligence and failure to comply with various federal banking laws.

The Star Tribune also reported on two other cases of HELOC fraud:

• Marsha and Michael Shames-Yeakel of Indiana discovered $26,500 in bogus charges on their HELOC account at Citizens Financial Bank in 2007. The money was wired to a bank in Austria. The bank refused to cover the loss, and the couple sued. The lawsuit is still pending.
• An unidentified customer of Sb1 Federal Credit Union in Philadelphia found that $220,000 had been stolen from his HELOC account and wired to Hong Kong. The bank covered the customer's loss but is now in court trying to recover the money from its insurers.

In October, the leader of an identity theft ring was sentenced in New Jersey to 69 months in prison for his role in a scheme that looted more than $2.5 million from customers' HELOC accounts. The ring targeted accounts at major banks and at smaller credit unions and had operations in the U.S., the United Kingdom, Canada, China, Japan, Vietnam and South Korea.

It's hard to guard against such an insidious fraud, and it's hard to ascertain ahead of time whether your bank or credit union has adequate security. Calcutt told the Star Tribune he shreds all his documents, doesn't access his credit union account from his home computer, and also rarely looked at his accounts from his more secure office computer.

His case is another reminder to be vigilant in guarding against identity theft, to periodically look at your credit reports, and always open your bank statements as soon as you receive them.

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