What Is Check Fraud? How to Avoid Getting Scammed

While contactless payment methods are increasingly popular, paper checks still play a role in our financial ecosystem. According to the FBI, check fraud is on the rise, with suspicious activity reports nearly doubling from 2021 to 2023.

If you handle checks in your financial transactions, it’s important to understand how your payment method can affect your financial security. Here, we’ll explain what check fraud is, how it works and how to avoid scams.

What is check fraud?

Check fraud is a financial crime in which someone illegally uses checks to steal money or property. The term “check fraud” is broad and can refer to several types of fraud, including forging checks, altering checks or knowingly writing checks without sufficient funds.

In general, check fraud occurs when criminals manipulate or misuse checks to obtain funds or items that aren’t theirs.

Types of check fraud

From fake checks to check washing scams, check fraud comes in many forms. Here are some of the most common schemes.

Altered checks

This occurs when a legitimate check is modified to benefit the fraudster. It might involve changing the recipient’s name or the payment amount. For example, a criminal might intercept a check, erase the original information and write a much larger sum in their own name.

Counterfeit checks

These are fake checks created from scratch. Fraudsters may use technology such as scanners, printers and special types of paper to produce checks that look remarkably similar to the real thing. Counterfeit checks can be designed to mimic payroll checks, cashier’s checks and even government checks, making them seem legitimate to unsuspecting recipients.

Forged checks

This type of check fraud involves a fake signature. For instance, criminals may forge the account holder’s signature to authorize blank checks. They may also take a legitimate check and illegally endorse it to cash it or deposit it into their own account.

Paper hanging

This occurs when someone knowingly writes a bad check to take advantage of the time it takes for checks to clear. The check writer uses the check to pay for goods and services despite knowing that it will ultimately bounce.

Phishing scams

Fraudsters may obtain information such as bank account and routing numbers through emails, text messages or phone calls and use it to create fake checks from your bank account.

Check fraud warning signs

Understanding the different types of check fraud can be beneficial, but it’s even more important to recognize the red flags that suggest a scam. What to keep an eye out for:

• Overpayment for goods or services: If you sell something and receive a check or money order for more than the agreed-upon price, the buyer may ask you to send back the difference via wire transfer. In this scenario, it’s more than likely that the check you received will bounce — and you’ll have no way to recoup the money you sent.
• High-pressure tactics: Scammers often try to rush you into writing or cashing a check. They may claim that an offer is available for only a limited time. This urgency is designed to make you act without thinking about the risks.
• Unusual characteristics: If anything on a check looks off, such as an obvious spelling error, blurry logo or smudged print, the check may be fake.
• Unsolicited checks and unexpected winnings: You may be notified that you won a prize and receive a check with instructions on how to pay fees to claim it. But only scammers will ask you to pay fees to collect a free prize.

How to avoid check fraud

Watching out for these suspicious activities is one of the best ways to avoid getting caught in a check fraud scheme. Here are some more suggestions on how to prevent check fraud:

• Check your mail daily: Though mailing checks is less common than it used to be, mailboxes are still prime targets for thieves looking to steal and alter paper checks. If you’re expecting a check by mail, monitor your mailbox each day to minimize the window of opportunity for theft. If you plan to travel, you may want to place a hold on your mail until you return.
• Choose a different payment method: While paying bills via check was once the norm, most service providers now accept payments online, ensuring that your payment ends up in the right place. For personal transactions, digital payment apps such as Venmo and Zelle make it easy to send money directly to your friends and family members. These platforms offer enhanced safety features that paper checks don’t.
• Set up account alerts: You can sign up for account alerts to stay informed about your finances in real time, including monitoring for unusual activity. Most banks allow you to receive alerts when transactions occur, both expected and unexpected, including overdrafts, international purchases, and unusually large withdrawals.
• Write your checks carefully: If you write checks, you could unintentionally commit check fraud if you pay with a bad check — that is, a check that exceeds the amount of funds available in your account. You likely won’t go to jail for accidentally writing a bad check, but you may be penalized in other ways. In addition to owing fees, you may not be able to open a new checking account if you have a history of writing bad checks.
• Be careful with email links: Watch out for emails from unknown sources. Even emails that appear legitimate could be fraudulent, so be sure to check the sender’s email address for typos, odd misspellings or other red flags before clicking any links.

What to do if you’re a victim of check fraud

If you think you’re a victim of a check fraud scheme, you must act fast to minimize any potential damage. Your next steps may depend on the type of check fraud, but in general, here’s what you’ll need to do:

1. Notify your financial institution

First, call your bank or credit union to explain the situation. Depending on how quickly you realize something is wrong, your financial institution may be able to help in several ways.

If an unauthorized check hasn’t cleared yet, your bank may be able to issue a stop payment and cancel the check. If the check has cleared, canceling it won’t be possible, but your bank can initiate a fraud investigation. An investigation can take time, but it could result in your bank reimbursing you for lost funds.

You may also need to close your compromised account. Discuss these steps with your financial institution.

2. File a police report

Regardless of the amount involved, file a report with your local law enforcement agency. Provide all of the details, including:

• Dates and times of any suspicious activity
• Copies of fraudulent checks or related documents
• Phone numbers, emails and texts, depending on your situation
• Actions you’ve taken in response to the possible scam

A police report creates an official record of the crime, which can be essential to your bank’s investigation and any potential legal action. Be sure to get a copy of the report for your records.

3. Report the fraud to the Federal Trade Commission

If you’ve fallen victim to fraud, others might be at risk, too. Report the incident to the Federal Trade Commission (FTC). The FTC collects complaints about scams and bad business practices. These complaints help investigators track patterns of fraud and take action against criminals.