What Is Bank Fraud? How to Recognize It, Avoid It and Report It

Financial fraud is on the rise. The Federal Trade Commission (FTC) recently reported that consumer losses increased by 25% in 2024 compared with the previous year.

From phishing scams to identity theft schemes, bank fraud can take many forms. Read on to learn the warning signs and put safety measures in place to protect your financial well-being.

What is bank fraud?

Bank fraud occurs when criminals execute a scheme to obtain someone else’s money, property or assets under false or fraudulent pretenses. Over the last few decades, these crimes have shifted from largely physical threats to digital plots.

Fraudsters are constantly refining their methods, using advanced technologies and social engineering tactics to steal personal information and gain access to money. This means everyone, from consumers to financial institutions, is a potential target.

Types of bank fraud

There are multiple types of bank fraud, each designed to exploit a vulnerability in the financial system or to trick people into providing sensitive information. Let’s explore some common types of bank fraud.

Check fraud

Check fraud refers to the unauthorized use or alteration of checks. Scammers may alter legitimate checks or create counterfeit checks, using your financial information to steal money or property. Although contactless payment methods are on the rise, check fraud remains a prevalent issue, according to the FBI.

Card fraud

Debit and credit card fraud occurs when criminals steal card information to make unauthorized withdrawals or purchases. They may steal physical cards, hack online accounts, comb through data breaches or use ATM skimming, which involves placing hidden devices on ATMs and card readers to capture card details.

Wire transfer fraud

In this scam, criminals trick individuals or businesses into sending money to an unauthorized account via wire transfer. This is often achieved by impersonating a trusted individual. For example, scammers might contact homebuyers posing as their real estate agent, requesting that a down payment be wired to a fraudulent bank account. Wire transfers typically cannot be canceled once they are in progress, making them an ideal tool for fraud.

Phishing scams

These are deceptive attempts to obtain sensitive information, such as usernames, passwords and bank account details. Phishing scams may come in the form of emails, text messages or phone calls, and they typically involve false pretenses, representations or promises. For instance, a phishing email may claim that you’ve won a prize and ask you to provide your checking account information to receive your funds.

Identity theft

This is a broad category in which criminals use people’s personal information — such as Social Security numbers, birthdates and bank account numbers — without permission. With this information, criminals can open bank accounts, fill out loan applications and make unauthorized transactions in the victim’s name.

How to recognize bank fraud

Avoiding bank fraud often comes down to recognizing the warning signs. Being aware of these red flags can make it easier to identify and stop fraud before it causes significant damage. What to keep an eye out for:

• Demands to act quickly: Fraudsters often use a sense of urgency to trick individuals into sharing information they might not otherwise. If you’re given less than a reasonable amount of time to fulfill a request, it’s likely a scam.
• Emails or texts with suspicious links and attachments: Never click on links or open attachments from unknown senders. Be wary of unsolicited emails and text messages, as they may attempt to install malware on your device.
• Requests for personal or account information: Your bank will never call, text or email you to ask for your Social Security number, online banking password, PIN or debit card information.
• Offers that are too good to be true: Be skeptical of offers that promise large amounts of money, such as unexpected lottery winnings or inheritances from relatives you don’t know. If it seems too good to be true, it probably is.
• Unsolicited checks or overpayments: If you receive a check for more than you’re owed and are asked to wire back the difference, it’s almost certainly a scam. The original check could bounce, and you’ll have no way to recover the funds you sent to the scammer.

Tips to avoid bank fraud

In addition to recognizing red flags, you can take other steps to protect yourself from bank account fraud. Here are a few simple strategies to help with fraud prevention.

1. Monitor credit cards and bank accounts

Unusual activity is often one of the first signs that a criminal has gained unauthorized access to your accounts, so it’s important to regularly monitor your financial accounts, including bank accounts and credit cards. Look for transactions you don’t recognize, withdrawals you didn’t make and unusual login attempts.

2. Set up account alerts

Many banks and credit unions offer alerts that notify you via text or email when suspicious activity occurs in your account. For example, you can sign up to be notified about international transactions or charges above a certain dollar amount. These alerts can help you stay on top of your accounts, making it easier to spot signs of fraud early.

3. Use complex passwords and multifactor authentication

Create unique, complex passwords that can’t be easily guessed for all of your online banking accounts. Passwords should be at least 12 characters long with uppercase and lowercase letters, numbers and symbols. Avoid using personal information, such as your birthday or mother’s maiden name.

Even better, enable multifactor authentication (MFA) whenever possible. This adds an extra layer of security while logging into your accounts by sending a one-time code to your phone or email, which you must enter along with your password to log in. This process makes it significantly harder for unauthorized users to access your accounts.

4. Opt for contactless payment methods

Many stores now accept contactless payments, allowing you to pay by tapping your card or mobile wallet on the payment device. These devices use near-field communication technology to collect payment information wirelessly and do not require physical contact with your card.

Contactless payment methods are generally safer than traditional ones, thanks to enhanced security features that make it harder for skimming devices to steal card information.

5. Update your computer and mobile security software

Make sure your computer, smartphone and other devices are protected with up-to-date antivirus software. If you accidentally click a suspicious link, this may be your last line of defense against malware designed to bypass normal security features, track your keystrokes and access sensitive information.

How to report bank fraud

If you notice signs of fraud, act fast. First, contact your bank and provide information about the fraudulent activity. Then, change your passwords, PINs and any other login details that may have been stolen.

The next step is to notify the proper authorities. If your identity has been stolen, visit IdentityTheft.gov to report it. Other types of consumer fraud can be reported to the Federal Trade Commission (FTC). The FTC does not investigate cases, but it collects complaints about scams, helping investigators track patterns of fraud and take action against criminals.

If you believe that your Social Security number has been compromised, contact the Social Security Administration at 800-772-1213. You’ll also want to take a detailed look at your credit reports for any accounts you didn’t open.

If identity theft is involved, you may want to freeze your credit with each of the three major credit bureaus until the situation is resolved. You’ll need to contact each credit bureau separately to request a credit freeze.