Check Kiting: What Is It and How Does It Work?

Check kiting is a form of bank fraud that involves depositing a bad check into a bank account and withdrawing those funds before the bank can reject the transaction. This behavior is surprisingly common, especially among those who need to wait a few days for their next deposit to hit their account.

However, check kiting is also illegal, and the penalties can be severe, including a sentence of up to 30 years in prison. Here’s what you need to know about this financial crime.

How does check kiting work?

Also known as "flagging," check kiting is a form of check fraud that generally involves depositing a bad check into your checking account and then spending the advance you receive on the funds while the bank attempts to process the check.

There are a few different types of kiting, each slightly unique (more on that below). Here is an overview of how it typically works.

1. The person committing check kiting needs to have two bank accounts. For the purposes of this example, let’s call them Account A and Account B.
2. Account B has only $100. Meanwhile, the account holder writes a check for $500 from Account A to Account B, even though Account A doesn't have sufficient funds to cover the transfer.
3. Upon deposit, the bank advances $250 of the check amount to Account B while it works to clear the funds.
4. The person then withdraws $250 from Account B before the check can be rejected for insufficient funds.

Types of check kiting

Check kiting is typically performed by people who want to buy themselves a few days to deposit more funds into their accounts. However, it sometimes can be part of a larger plot to steal money from banks. Here are a few examples of how these larger fraud schemes can work:

• Circular kiting: This involves writing bad checks from one account to another. Sometimes, circular kiting involves using different banks or various types of identifying information to extend the time between when the advance funds are posted and when the checks are ultimately rejected.
• Endless kiting: This involves creating checks with the location information of one bank and the routing number from another. Often, the banks send the checks back and forth in confusion, preventing them from being rejected for having insufficient funds.
• Retail kiting: As the name suggests, retail kiting involves writing a bad check to a retailer for more than the amount of items purchased and requesting cash back. By the time the check is rejected, the perpetrator is often long gone with the money and stolen items.

Check kiting penalties

Check kiting is illegal; however, not all cases will lead to the same penalties. Depending on the specific circumstances surrounding the check kiting incident, you may face a range of consequences, including:

• Added bank fees: Once the check is rejected, you may be charged a nonsufficient funds (NSF) fee by the receiving bank and a returned check fee by the sending bank.
• Account closure: Depending on how often rejections occur, your bank activity can be frozen and/or the banks may choose to close your accounts.
• Bank reporting: Banks maintain records of such events. Either bank involved in the check kiting incident may report it to reporting companies like Early Warning Systems (EWS) or ChexSystems. Having a mark against you in either of these systems can make it hard to open new bank accounts in the future.
• Restitution: You may be required to repay any amount you stole from the bank, plus additional amounts to compensate for its losses.
• Criminal charges: If the check kiting incident is determined to be a felony, you could face up to 30 years in prison and $1 million in fines.

How to prevent check kiting

It can be tempting to engage in check kiting if an expense arises and you need to buy yourself a few days until more funds can be added to your account. However, it’s important to remember that this is an illegal activity, and the penalties can be severe, often causing bigger problems than simply being short on cash. Instead, here are some strategies you can use:

• Wait until the check clears: The best way to prevent check kiting is to wait until a check has cleared in your account before you spend the money. If needed, consider reevaluating when you make purchases and renegotiating payment dates to accommodate when your income will arrive in your account.
• Keep a cushion in your account: Try to keep a small amount of money in your account that you refrain from spending. This balance can act as a “cushion” to help prevent accidental overdrafts.
• Turn on overdraft protection: As the name suggests, overdraft protection prevents you from overdrawing your accounts by withdrawing funds from another linked account instead. This can be a good option if you tend to keep a low balance in your checking account but have a decent amount in savings.