Scam Watch

High-Tech Banks Struggle With This Old-Fashioned Crime

Check fraud might seem old-fashioned in the modern era of digital banking, but it’s on the rise thanks to increasingly sophisticated criminal gangs. Victims may lose money for months, if not forever. Here’s how it usually works…

Photo by Money Knack

The growing financial technology sector has made sending and receiving payments easier than ever. PayPal, Venmo, Google Wallet and Apple Pay have nearly replaced the credit and debit card – which had already annihilated the humble paper check.

We know that new technologies spawn new types of scams. The story that often goes under-reported, though, is how often old scams resurface. Tried-and-true financial fraud techniques never really go away. After all, if they worked once, chances are they’ll work again.

Like entrepreneurs, thieves follow the money. Even when it takes them back in time.

The growing problem of check fraud

Recently, U.S. banks have struggled with a new spike in an old type of financial theft: Check fraud.

Here’s how it often works:

  • You write a check (maybe personal, often a small-business payment) and drop it in the mail
  • An organized group of criminals break into and empty the mailbox, or mug the mail carrier at gunpoint
  • Fraudsters alter the check – either fraudulently endorsing it and depositing it at another bank, or altering it to change both the recipient and the amount paid (“washing”)

The Richmond Federal Reserve warns:

Mail theft has been on the rise since 2017, according to the Postal Police Officers Association. Recent media reports reveal numerous assaults on postal workers. Criminals steal mail and universal mail keys, searching the stolen mail for banking information, access collection boxes and checks. Stolen checks can be altered and re-written for the criminal’s use. Account and routing numbers from the stolen checks can be used to create counterfeit checks.

If your check is fraudulently endorsed and deposited, you might not even know about it until you start receiving Amount Past Due notices.

If scammers use “washing” techniques to alter the recipient and payment amount, you might recognize that something’s off sooner.

Either way you’ll call your bank and explain the situation. Often, that’s where the trouble really starts.

Bank fraud investigations take “weeks or sometimes even months”

When you file a fraud claim with your bank to investigate such an incident, don’t expect a speedy resolution.

Here’s why: Both you and your bank have lost money. Your bank will reach out to the scammer’s bank to begin an investigation. The scammer’s bank will probably find the relevant account empty.

The scammer has taken the money and run.

The depositing bank is generally liable to make restitution – however, there are exceptions. As Ronald Mann, a Columbia Law School professor explained to the Wall Street Journal:

Banks can decline to cover a stolen check if a customer takes too long to report it. Most banks require a claim be filed within 30 days to 60 days of the fraud appearing on their statement. They can also deny a claim if investigators suspect the customer was negligent or involved in the fraud.

That gives banks a reason to delay reimbursements until an investigation makes it clear who is responsible, Mr. Mann said.

“If a bank returns a customer’s money right away, the bank has lost that money. If they hold on to that money and it turns out they are entitled to keep it, they still have the money,” said Mr. Mann. “So there is an incentive to try and wait until the dust settles.”

So many excuses! You waited too long to file the claim. You were negligent. You were complicit.

Essentially, nobody wants to pay you back (especially if the fraudster has a $0 balance).

What if the washed check results in an overdrawn account? Well, don’t expect much charity from your bank. The WSJ article describes a Bank of America customer who was sent to collections for the balance BoA paid on a bad check after she alerted them to the fraud.

In another case, a JPMorgan Chase customer was still waiting for a $5,000 repayment on a fraudulent check after three months (and multiple rounds of paperwork).

Just how big a problem is check fraud?

Most of us don’t use checks too often in our daily lives. We rely on ACH or online banking payments instead. On the rare cases when we do write checks, perhaps for a donation to charity or to pay a fee to a local agency, we’re at risk, too.

Back in February, FinCEN issued a nationwide alert on mail theft-related check fraud. 2021 saw a 23% rise in reports of check fraud, and 2022 numbers were double the previous year’s.

Maybe we aren’t writing more checks – they’re just being stolen much more often.

How much money are we talking about? The American Bankers Association, a trade group for banks, isn’t saying. They haven’t released any updates on dollars lost to fraud since 2018, when $15.8 billion in attempted check fraud cost U.S. banks $1.3 billion. A conservative estimate of the total stolen by check fraud: $2.7 billion.

Staying one step ahead of check fraudsters

Frank W. Abagnale, subject of the blockbuster movie Catch Me If You Can (it’s worth watching!), is one of the world’s most respected authorities on the subjects of check fraud. Mr. Abagnale believes that punishment for fraud and recovery of stolen funds are so rare that prevention is the only viable course of action.

That means it’s up to us.

Fortunately, there are a few easy ways to stay out of trouble:

  • Use electronic payments whenever possible. Don’t put a check in the mail if you don’t have to! Most banks allow digital payments. Conversely, most of your bills (utilities, cable, phone, mortgage etc.) can be paid through the company’s website.

If, for whatever reason, you must send a check:

  • Use the right pen. One of the most overlooked security details is the pen that you use. Mr. Abnagale recommends Uni-ball 207 gel pens because their ink prevents check washing, and they only cost about $2 each.
  • Use tracking. Consider sending checks through USPS certified mail, Priority Mail or another trackable method that includes delivery confirmation.
  • Avoid mailboxes. Take your payments to the post office – you don’t have to wait in line, just drop them off in the Outgoing Mail slot.
  • Use available security measures. Your bank may allow you to review and approve checks before they’re deposited – if so, you definitely should.

What to do if you’re a target

If scammers rob you despite your best efforts, here’s what to do:

  1. Contact your bank immediately. They may be able to reverse a fraudulent check within the first 24 hours. Even if that time has passed, you’ll need to contact them to launch a fraud investigation.
  2. Report check theft to the U.S. Postal Inspection Service at (877) 876-2455 or https://www.uspis.gov/report

Knowing what to look out for is key to defending against most scams. To help you detect and avoid financial scams, Birch Gold Group has pulled together an extensive resource guide that is now available on our website. The Birch Gold Group Scam Protection Resource Guide helps you identify warning signs and provides you with tips on how to avoid fraud.

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