How Does Check Fraud Happen?
Check fraud occurs when scammers illegally alter, forge, or steal checks in order to withdraw money from a bank account. Although it may seem like people rarely write personal checks anymore, check fraud has become a sizable problem in the United States.
Just last year, 56 people were arrested after they altered stolen checks, deposited them into bank accounts, and then quickly withdrew the money from ATMs. Scammers stole roughly $5 million before officials caught wind of the forgeries [*].
In February, the Financial Crimes Enforcement Network (FinCEN) issued a warning, citing a “nationwide surge” in check fraud schemes. According to FinCEN’s alert, banks issued 680,000 reports of check fraud last year — almost double the number of reports in 2021 [*].
The good news is that you can preserve your financial security by understanding how fake check scams work.
What Do Scammers Do With Stolen Checks?
Most often, scammers begin the check fraud process by stealing checks out of unlocked residential mailboxes and collection boxes. From there, they can:
- Con artists use household cleaning chemicals to “wash” off the pen ink from a check while keeping the rest of the check intact.
- Once the check is dry, they write themselves in as the payee, change the dollar amount, and cash it — a process known as “check washing.” This is one of the more common types of check fraud, accounting for over $815 million in losses every year [*].
Create counterfeit checks
- Swindlers can use graphic editing software to create altered checks that they then cash themselves or sell on the Dark Web.
- Scammers can also send fake checks to other victims, claiming that recipients have won the lottery or were included in a mystery shopper campaign.
- As part of the deal, the victim has to cash the check and wire back a certain amount to cover supposed taxes and processing fees. When the check bounces, scammers keep whatever money the victim sent them.
Write checks against closed accounts
- In a similar scheme, fraudsters write a prize winner’s check from a closed account. Since it takes time for the check to clear, victims don’t know that the check is bad until it bounces. By then, they’ve lost any payments that they sent to the scammer.
Forge endorsements and commit identity theft
- Scammers can forge your signature and pose as the account holder at the bank, asking for cash instead of making a deposit.
- They can also use the name and address listed on your checks to find other information about you, leading to full-blown identity theft. With enough personal data, they can open new credit cards, take out loans in your name, and drain money from your other debit accounts.
📚 Related: How Does Debit Card Fraud Happen? Can You Avoid It? →
How Are Fake Checks Used in Check Deposit Scams?
Mail and check thieves can use fraudulent checks in myriad ways. Here are some scams they orchestrate, hoping you will unknowingly deposit a fake check.
Crooks make offers to buy items on marketplaces like eBay or Craigslist. To finalize the sale, fraudsters send a check to the seller that exceeds the item’s list price — say $2,000 instead of $150.
Suddenly, contrite about the overpayment, the phony buyer then urges the merchant to pay back the excess through a different payment method such as Venmo or Zelle. The original check doesn’t go through, and the seller can’t recover the funds.
Fake stimulus checks
It’s not uncommon for the federal government to send relief checks during economic downturns or catastrophic events such as the COVID-19 pandemic.
Conmen jump on these opportunities, distributing fake checks and asking victims to send a small amount of money back to them via ACH (Automated Clearing House) or gift cards.
Other grifters steal stimulus checks and use them to carry out related schemes. Between December 2019 and August 2020, a Virginia man stole mail from over 150 people to create counterfeit COVID-19 stimulus checks and commit identity theft [*].
Car wrap and other “get rich quick” scams
- Scammers pretend to work for a popular beverage company or other online business, offering jobs that yield fast money. All that workers have to do is put ads on their cars, place cold calls, or perform data entry [*].
- If someone responds, the fraudster sends them a hefty check, claiming that only part of the check covers their salary. The rest must be sent to a car wrap or equipment dealer via wire transfer.
- After the check bounces, the victim loses any money that was wired to the alleged vendor.
Nanny or caregiver scams
But as part of the onboarding process, the victim needs to buy supplies and then return some of the money to the employer (or someone else who is part of the scam). When the check bounces, the victim is out of a job — and has lost any money sent to the scammers or used for supplies.
According to research from The University of Pennsylvania, 60% of care workers come across these kinds of scams when looking for work [*].
Small business fraud
Many small businesses accept paper checks or use them to pay their vendors. Often, they send or receive multiple checks at a time.
Fraudsters have learned to identify and steal stacks of check-sized mail going through the postal service — cashing or using them to produce more fake checks.
The owner of a small PR firm in New York realized that he was a victim of check fraud when 15 of his clients missed payments. It turned out that those checks were stolen and washed [*].
Remote deposit capture scams
Sweetheart scams are a common entry point for remote deposit scams. Once criminals feel that they’ve fostered enough trust with a victim, they contrive an elaborate story.
The scammer explains how they’re currently overseas without access to a bank and can only send checks. But there’s a way the victim can help — by providing access to their bank account.
Fraudsters then use the bank’s mobile app to deposit bad checks into the victim’s account. And after the victim transfers the money, the scammer disappears. With the victim’s bank account number, con artists can also go shopping online, launder money, and even conduct tax fraud.
7 Ways to Identify a Fake Check
While scammers are skilled at devising new ways to commit check fraud, their schemes can be porous. Be on the lookout for these telltale signs of check tampering whenever you receive check in the mail:
- Irregular perforations (or micro-perforations). Checks generated by a legitimate printer have one or more rough edges [*]. But too many or too few perforations may be a sign of a bad check. If a check looks suspicious, compare the perforations to one of your own blank checks.
- Missing check numbers. People use check numbers to reference their transactions, but banks don’t need them to process a check. This means scammers can clear several checks with the same number [*]. One way to identify fake checks is to compare the three-digit number in the upper right-hand corner to the last three digits in the magnetic ink character recognition (MICR) line on the bottom of the check. If they don’t tally, the check is likely fake.
- Incorrect routing code vs. the location of the bank. There is a routing number at the bottom of every check, and the first two digits are a Federal Reserve District Code that represents the bank’s location [*]. There should also be a fraction in the upper right corner of each check. The first two digits represent a city/state prefix, the next three are a financial institution identifier, and the final three are the federal reserve routing code [*]. The first three digits after the zero in the routing number should be the same as the last three digits of the check routing symbol.
- Odd MICR line. Run your fingers along the bottom of the check where the routing and account numbers are typically located. These characters shouldn’t be raised or have any reflectivity or shine to them. Try dampening your finger and running it over the strip — the numbers on a fake check may change color.
- Notations in the memo area. Sometimes scammers list words like “dividends” or “payroll” in check memos. But real businesses have accounting functions dedicated to processing checks and don’t need such citations.
- Stains or discolorations on the check. When done too quickly, check washing may create watermarks or cause text to rub off when you touch it. Fraudsters frequently print fake checks on shiny, poor-quality paper — making ink even more likely to smear.
- Other discrepancies. Missing payer and payee names, addresses, and MICR numbers can be evidence of tampering [*]. Words such as “non-negotiable” or “VOID” written across a check are suspicious, as are strange-looking signatures and varying fonts.
How To Prevent Check Fraud
- Safeguard your mail
- Use your online banking features
- Shred sensitive documents
- Use indelible black gel ink pens
- Do not accept overpayments
- Opt for checks with one or more security features
Safeguard your mail
Residential mailboxes are fertile grounds for scammers. Do not leave your mail unattended; send checks via a post office collection box when at work, or hand them directly to your carrier.
If you’re expecting a check but may be out of town when it arrives, put a hold on your mail or reroute it to a different address [*]. Note that you’ll need to create a USPS.com account and present multiple forms of identification to complete the process.
Use your online banking features
Whenever possible, eliminate the use of paper checks altogether. Consider paying recurring bills online, and opt for paperless statements. Pay attention to any overdue notices, and reconcile your records every 30 days.
You may find that some checks haven’t cleared, or notice other abnormal activity on your account. Ask your bank about positive pay or reverse positive pay services. These options deter check fraud by matching the check information that companies provide with the checks that banks receive [*].
Shred sensitive documents
Always shred unused or canceled checks, pre-approved credit notices, and bank statements before discarding them — scammers can steal these out of the trash.
Make a point to examine your check supply regularly, and report any missing checks to your bank. Never write checks payable to “cash” or “bearer” since anyone can take that money. And don’t endorse checks until you’re ready to deposit them via your phone or at the bank.
Use indelible black gel ink pens
The Better Business Bureau (BBB) urges consumers to sign their checks with long-lasting (indelible) black gel ink. This ink is particularly tough to scrub off, making it nearly impossible for scammers to erase the original contents of the check [*].
You should also avoid using “counter checks.” These are magnetically encoded with your account number but require you to write out any company and payee information by hand. For scammers, counter checks are free money — they can write in whatever they want [*].
Do not accept overpayments
Receiving a check in the mail for an item more than your asking price usually turns out to be some form of bank scam.
Do not deposit these checks, checks from unknown senders, or checks associated with out-of-town banks. Remember to scrutinize the check date, sender name, and financial institution for errors or dubious characteristics.
Opt for checks with one or more security features
Some banks offer check fraud protection features such as special ink, check paper, and microprinting. Intuit, for example, issues checks with premium-grade security paper that’s not available for sale anywhere else [*].
Other check manufacturers may embed security features that are challenging for scammers to replicate [*]. Use a bank that can provide checks with at least one of the following features:
- A mixture of visible and invisible fibers
- A 3D, reflective holostripe
- High-resolution microprinting
- Watermarks that can’t easily be copied
- Chemical voids
Report Check Fraud as Soon as You Can
A bank is obligated to compensate customers for fraudulent checks, unless it determines that the customer's actions significantly contributed to the forgery [*].
You can increase your chances of recovery by filing a police report and calling your bank’s Fraud Prevention or Fraud Operations hotline [*]. Be prepared to sign an affidavit certifying that you did not authorize the check.
You should notify a few other organizations to help law enforcement apprehend the scammer. If you’re the victim of:
- Stolen checks, file a case with the U.S. Postal Inspection Service (USPIS).
- Fake checks, report them to the Federal Trade Commission (FTC) at identitytheft.gov.
- Phishing as part of check fraud, forward emails and texts to email@example.com and SPAM (7726), respectively.
Statistics show that if someone was a victim of fraud once, they’re nearly 50% likely to become a repeat victim [*]. The same applies for check deposit scams; scammers often target the same individuals multiple times.
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