Consumer-engaged fraud (CEF) has accelerated at a pace that few in the financial services industry anticipated. To better understand how to address CEF, first we need to examine the types. CEF can be broken down into two sub-categories:
- Misuse: We define this as first-party fraud committed by a legitimate consumer, whether intentionally or unintentionally. With the rise of digitalization, some consumers are willing to intentionally commit misuse first-party fraud. Some consumers even openly teach others how to defraud their financial institution via videos posted on social media.
- Persuaded: We define this as fraud committed after being influenced into an action by a third-party via social engineering or scams. For example, phishing kits are now sold online as turnkey “starter packs,” complete with scripts and templates, making it easier for people to run their own phishing scams. Fraudsters use artificial intelligence (AI) to create communications indistinguishable from legitimate credit union outreach. Impersonation scams have evolved into sophisticated relay attacks that redirect members to real online banking sites, while secretly intercepting their credentials.
Industry data shows that CEF is no longer a fringe issue—and it’s not just limited to issuers:
- 2025 was the first year in which first‑party fraud surpassed scams as the leading fraud category (LexisNexis).
- $12.5 billion was lost to fraud in 2025, with 60% of companies reporting an increase (Federal Trade Commission).
- Impersonation scams rose more than 1,400% from 2024 to 2025 (Chainalysis).
- During the same period, 64% of merchants reported experiencing an increase in disputes tied to first‑party fraud (Merchant Risk Council).
- The global Merchant Risk Council has deemed “Refund and returns policy abuse” as the most prevalent fraud type facing merchants such as online retailers. Only 3% of merchants say they have not suffered any “refund and returns policy abuse.”
To address this rapidly evolving threat, credit unions must implement three essential pillars: identification, awareness, and protection.
Identification: Clarity before control
CEF remains difficult to quantify, because mislabeling and inconsistent policies obscure its true impact. Add the embarrassment members feel when scammed—or the reluctance of those who knowingly commit fraud—and it is clear why incidents are underreported.
To cut through this ambiguity, the industry needed a unified framework to identify and categorize CEF. Velera developed the Consumer-Engaged Fraud Classification Guide, a free resource for credit unions. The guide provides a consistent language and clear structure for reporting fraud, helping to distinguish between different types of fraud—misuse, persuaded, and an emerging category, collusive merchants.
Once credit unions establish standardized classifications, they must deploy tools and teams to identify CEF events that might otherwise fly under the radar. For example, systemwide tagging solutions enable credit unions to create an aggregate database of repeat offenders and discern how widespread the problem is within their member base.
On the people front, credit unions should consider partnering with a Consumer Engaged Investigation (CEI) team. Made up of trained investigative professionals, a CEI team steps in after fraud is reported but before the chargeback, reviewing prior fraud reports, IP data and other signals to confirm whether the case is consumer‑engaged. When a CEI team is able to close out cases, the result is significant cost savings and improved recovery for the credit union.
Awareness: Education that evolves as quickly as fraud
Fraud tactics change too quickly for single-session training. A third CEF category has begun to emerge: collusive merchants, whereby consumers work with merchants—or create sham merchant accounts—to commit fraud. This underscores the need for continuous, iterative education that evolves alongside fraud trends.
Protection: Real‑time intelligence for real-time threats
Once CEF occurs, credit unions need rapid detection, prevention and notification. Alerts can’t always go to the member—especially in misuse cases where the cardholder is the fraudster. Instead, credit unions must rely on real‑time behavioral intelligence, stronger authentication protocols and clear liability policies to protect against CEF.
CEF is now a permanent part of the fraud ecosystem, and its speed and sophistication demand an equally agile response. Credit unions that embrace clearer definitions, evolving education and real‑time protection will not only reduce losses, but strengthen member trust in an increasingly hostile environment.
