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What Is Check Fraud and How Can You Avoid Getting Scammed?


Written by Emily Long | Published on 12/16/2018

Checks may seem secure and trustworthy. And understandably so: You deposit a check, and your bank quickly releases funds to your account. Or you drop a bill payment in your mailbox and expect your utility company will receive it and credit your account appropriately.

Unfortunately, a lot can go wrong in these scenarios. Checks are easily stolen, faked or forged. Check fraud complaints reported to government agencies and consumer groups have doubled over the past three years.

The Federal Trade Commission (FTC) said it receives tens of thousands of fake check reports each year, and that number has increased steadily year over year. As has the amount lost to these scams. In 2017, the FTC received complaints totaling more than $25 million in losses due to check fraud. The FBI’s Internet Crime Complaint Center (IC3) reported losses of more than $12 million in 2017.

But the FTC also believes that less than 10% of check fraud victims file reports to the Better Business Bureau (BBB) or law enforcement, and even fewer report to federal regulatory agencies. It’s estimated that there were more than 500,000 victims of counterfeit checks in 2017.

What is check fraud?

There are several types of check fraud. Some involve criminals stealing, forging or faking your personal checks. Others are related to fake checks you may receive from scammers you don’t know.

Personal check theft and forgery

Jeff Lanza, a cybercrime expert and former FBI agent who spent more than 20 years investigating financial crimes and fraud, told DepositAccounts that one of the most common check scams occurs when someone gets ahold of your routing and account numbers and prints fake checks. These checks are connected to your bank account, which means thieves can quickly clear out your cash by writing bad checks.

In other cases, thieves will get ahold of a check you’ve written — a bill payment or birthday card you’ve left in your mailbox, for example — and erase the ink using basic household chemicals. This practice, called check washing, allows them to make the check out to a new recipient or themselves. Meanwhile, your signature is legitimate, and if the deposit amount remains the same, you may not realize that the intended recipient never received their money.

A third fraud possibility is that a thief, or even the legitimate check recipient, will manipulate the amount, such as by adding zeros.

Cashier’s check fraud and forgery

Another type of check fraud involves cashier’s checks or fake checks you receive from scammers. The BBB warns that there are more than a half-dozen common types of fake check fraud, including mystery shopper scams to overpayment scams to fake sweepstakes and lotteries.

The scams go like this: You receive a check — often a cashier’s check — in the mail with a note that you won a prize from Publishers Clearing House or another recognizable lottery. To claim your “prize” though, you have to deposit the check into your account and wire taxes and fees back to a third party. Of course, the check is fake, but because banks release funds quickly, you’ve now paid a large sum of your own money to scammers and received nothing in return.

Another scam involves overpayments for legitimate goods you sell on Craigslist or other online marketplaces. The buyer sends a check over the amount you agree upon, says they made a clerical error in filling out the check and requests that you deposit it anyway and refund the extra via wire transfer. As in the first example, the money you wire is yours, not legitimate funds from the fake check.

A third scenario is the mystery shopper scam, which the BBB reports is the most common type of check fraud. In this situation, scammers offer victims jobs as secret shoppers and tell them to deposit an enclosed check into their accounts. The victim is then instructed to “mystery shop” at a store such as Walmart, write a report of their experience, wire some of the money back and keep the rest as payment. Because the check is fake, you’re sending your own funds to the thief. In some cases, scammers send victims to drugstores to buy gift cards and send photos of the numbers back as well.

While it is possible for scammers and thieves involved in check fraud to steal your personal information and use it in malicious ways, most are looking to rip you off — and you stand to lose significant sums depending on the scam.

“The goal here is money,” Lanza said. “If I’m a person who is involved in check fraud, I just want to convert that paper into cash.”

4 signs you’ve fallen victim to check fraud

1. You bounce a check or overdraft

If you normally have enough funds in your bank account to cover the checks you write and your other bill payments, bouncing a legitimate check or overdrafting may be a sign that someone else has access to your money. Banks won’t cash checks if you have insufficient funds, and they may charge you a nonsufficient funds or overdraft fee. A bounced check is one of the primary ways consumers discover they’ve been victimized, according to Lanza.

2. You find large withdrawals from your bank account

Another red flag is large withdrawals from your account that you did not make. If a fraudster has forged or altered one of your personal checks and is using that to steal, you may see transactions in strange amounts or at unexpected times.

3. You identify any signs that a check you’ve received is fake

While Lanza said checks are relatively easy to forge, there are a few warning signs that give away a bad check:

  • The printed ink smears like a newspaper when rubbed
  • There is a discrepancy between the numerical and written amounts
  • A personal check lacks a perforated edge
  • The financial institution’s name and address appear to be typed directly rather than printed
  • The check paper feels slippery or low quality

4. You are asked to wire money

The FTC warns consumers that if someone sends you a check and asks for money back, that’s a scam in all cases. If you are told to wire fees to receive lottery or sweepstakes winnings, receive an overpayment for an item you sold or get paid upfront as a mystery shopper, you are a target — but hopefully not a victim.

4 ways to prevent check fraud

You can reduce your risk of becoming a victim of check fraud with a few security precautions.

1. Secure your personal checks

If you use paper checks, adhere to security best practices to prevent thieves from stealing, washing or otherwise altering your checks.

  • Keep your checkbook in a secure place. Don’t carry it with you if you don’t need it, and avoid leaving loose blank or canceled checks out of your possession.
  • Track your checks. If recipients don’t cash or deposit your checks as expected, or if one goes missing, report it to your bank immediately.
  • Never leave checks or bill payments in your own unlocked mailbox. Place them in a security envelope and drop at a post office box or location.
  • Use a gel pen rather than a ballpoint to fill out checks. Gel ink is more difficult to remove, according to Lanza.
  • Don’t leave space on your checks for criminals to add numerals. Fill blanks with dashes.
  • Choose plain checks with as little personal information printed on them as possible.

2. Use secure electronic payment instead of paper checks

Lanza advises consumers to use secure payment methods such as Zelle or PayPal whenever possible. Of course, mobile payment apps and online platforms are not without security risks. For example, Experian warns that Zelle’s quick transfer process is a target for scammers, and the app doesn’t offer a dispute process or protections for consumers. But in some cases, such as sending money to people you know or paying your rent, these e-pay options may be more secure than a paper check.

3. Sign up for balance alerts with your bank

Many financial institutions offer opt-in push alerts — via text, email or app — for low balances, large withdrawals and other account activity. These security notifications can help you stay on top of fraudulent activity and react more quickly, especially if you aren’t in the habit of checking your bank balances regularly.

4. Do not return money sent via cashier’s check

Be wary if you get a check from someone you don’t know. If you are selling an item for which you receive a cashier’s check in an amount higher than the agreed-upon price, don’t accept it — in fact, it’s generally safer to use a secure payment platform than to exchange paper checks. Finally, don’t return money received via cashier’s check.

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

If you come across unusual activity on a bank statement or believe you’ve been a victim of check fraud or a cashier’s check scam, contact your financial institution immediately to determine next steps. In the case of cashier’s check fraud — in which you’ve deposited a fake check into your account — you can also alert the bank that appears to have issued the check.

Lanza noted that victims can also contact local law enforcement if they’ve had money stolen but added that unless the perpetrator is part of a larger organized crime, police may not act on individual cases.

Several national organizations and regulatory agencies accept consumer check fraud complaints, including the BBB, FTC, IC3 and U.S. Postal Inspection Service. While filing a complaint likely won’t get you your money back, it does help law enforcement better understand financial scams and the people who commit fraud to prevent future crimes.

If you do fall victim to check fraud, continue to track your bank accounts regularly and sign up for alerts with your financial institution.

Conclusion

Check fraud is a growing problem, but that doesn’t mean you have to fall victim. Treat your checks like any other sensitive document that contains personal identifying information, and be wary of sending money to anyone you don’t know.

Comments
Nothing
Nothing   |     |   Comment #1
Do not have overdraft “protection”. If you can’t manage $ get out of check writing business but if someone wrongfully writes a check let it bounce. Of course biggest problem is the feds do not allow one to preapprove ACH transfers...that is wrong!
barry_NY
barry_NY   |     |   Comment #2
Check fraud is also enabled by the stupidity of bank employees' inability to spot a fake check. I had a "customer" that said they would wire me payment, which is common practice for my business. Instead, they mailed a really bad fake check to my bank, then said payment was wired to my account. Then, of course, tried the over-payment scam.

My account said check deposit, not wire, so I immediately knew what happened and alerted my bank. The bank idiots received in the mail a foreign letter with a check so bad a 10 year old would have caught it, but deposited it into my account anyway. After chewing out the bank CSR, I was told that I would have to wait for the check to bounce, then come back and request a reversal of the bank fees. They had to place a note in my account to not deposit mailed checks.
Rosedala
Rosedala   |     |   Comment #4
Larry, let us know the name of the bank with the idiot staff so the rest of us don't use it. I'm very familiar with this type of bank (and other) staff... Thanx.
James
James   |     |   Comment #3
This article is not up to date and is not addressing the real issues like, since 2004, 99.99% of the banks and CUs never used the original check for any transactions, they make replica of it called CHECK 21. With that check 21, it is very easy to dispute any transactions down the chain of events and trace it to the origination bank (very important transaction is the first entry of such check into the system), should the check is bad everything is revered in one day or less and no penalties are assessed to the innocent party. All transactions are electronic with check 21 and no human error can occur.
Check 21 provides a special refund procedure (called "expedited recredit") and every bank is using it now. The article did not even mention it, that is why I call this article waste of the consumers time.
Martin
Martin   |     |   Comment #5
You are correct James, I do not know who wrote this article to scare people, but as an ex bank manager, I can confirm that your finding is right on the money. In order to give credit with check 21, the money must be secured electronically from the issuing bank first, if there is not sufficient funds the depositor is warned immediately and the whole process is stopped. I had no complains or any issues with check 21, it is an instant ACH and the funds are immediately credited to the depositors. It is very very very difficult to deposit a bad checks using check 21, if not impossible, because of the communication channel established between the check issuing bank and the depositor's bank. All transactions are in real time with check 21. You can not deposit fake checks either, because of the fail safe features established internally between the banks.
Meh
Meh   |     |   Comment #7
I just read this after I commented. So all banks use check 21?
QCheque
QCheque   |     |   Comment #10
Yes, about 99% use Check 21
Meh
Meh   |     |   Comment #6
I cannot believe no one is doing anything about this! My son got scammed and is now deeply in debt with a new baby due in February!! If no one does anything about it, why would they ever stop? This is stupid!
QCheque
QCheque   |     |   Comment #9
Yes, we are doing something about it by masking the account number on the paper checks. Check out www.qcheque.com and also my recent video I posted on LinkedIn showing How we are doing it. https://www.linkedin.com/in/youngsonabad/detail/recent-activity/shares/
QCheque
QCheque   |     |   Comment #8
Statement, "your bank quickly releases funds to your account" is not wrong. Banks usually put deposited items on hold and only release funds after the deposited check is cleared.
Statement “Unfortunately, a lot can go wrong in these scenarios”. Should be revised as “A lot goes wrong with these scenarios”
“Checks are easily stolen, faked or forged. “ Although there are options available for minimize the stolen check problem but as far as faked or forged problem goes, it can be eliminated with QCheques. The account number on the MICR line of each and every QCheque is masked with a randomly-generated code. This account number encryption serves as a unique token that can only be used once. This prevents account number comprises and check fraud, giving your checking account holders peace of mind with value-added privacy and security.
Use secure electronic payment instead of paper checks...is saying through baby with the bath water.

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