Despite a steady drop of fake checks being in circulation, check fraud remains tenaciously persistent. Fraudsters continue to take advantage of access to inexpensive technology, social engineering tactics, and remote business practices to engage in illegal and deceptive check fraud schemes.
Even as the use of ACH, mobile, and card payments increases, paper checks continue to lead B2B transactions around the world. According to the Association for Financial Professionals (AFP), checks make up 42% percent of B2B transactions.
Meanwhile, the overall threat posed by check fraud only slightly decreased as the ‘most vulnerable payment method’ from 70% in 2019 to 66% in 2020, according to AFP. (A drop likely due to branch closures and a decrease in in-person banking amidst the pandemic.)
What is more, according to the FBI, 70% of U.S. organizations reported check fraud, resulting in more than $18 billion in losses. For financial institutions, the average phony check or money order scam resulted in $1,500 in losses per item, according to the Better Business Bureau.
As checks continue to be a rewarding target for fraudsters, are financial institutions doing enough to address check as a significant threat?
Potential Threats Posed by Fraudulent Checks
As a reminder, check fraud poses a major threat. A fraudulent check can offer criminals several opportunities for exploitation:
Creating counterfeit checks: Fraudsters can make altered checks or use details from the check, such as your account number and the bank’s routing number, to fabricate counterfeit checks.
Executing identity theft: The check contains vital information like the account holder intended recipient’s name and address, which can be used for identity theft.
Executing unauthorized withdrawals: Alongside other information, fraudsters might exploit your account details to illicitly withdraw funds.
Check Fraud Tactics Today
Even more, as deposit channels have evolved, so too have check fraud tactics.
New check fraud techniques, strengthened by advanced printing and scanning technologies, have made producing fake checks less expensive and simpler than ever before. Fraudsters can create counterfeit checks on high-quality stock with legitimate financial institution names and addresses, multi-colored watermarks, and verifiable routing and account numbers.
There are also social engineering tactics to contend with. The FTC has repeatedly warned about cons involving people duped into believing they have landed a new job as a mystery shopper or personal assistant; bought into car-wrap advertising; won a phony sweepstakes; or received an overpayment. In these instances, the victims will receive text message with instructions to deposit funds from a bogus check into their account. They are then usually instructed to send or wire an electronic payment before their FI can detect the fake check.
Counterfeit Checks in Recent Years
During the pandemic, checks were especially prevalent in unemployment and stimulus payment fraud, romance and pet scams, as well as get-rich-quick-type money mule schemes.
According to data from Advanced Fraud Solutions, we have also seen a massive uptick in fraudsters attempting to move money orders taking advantage of remote and mobile deposit channels. For example, duplicate deposit scams that can be executed through the convenience of the fraudster’s phone.
Digital Checks and Remote Deposit Capture
In recent years, the advent of digital checks and remote deposit capture (RDC) has opened up a new frontier for check fraud. RDC allows customers to deposit checks remotely by taking a photograph of the check and transmitting it to their own bank account.
Unfortunately, the widespread use of RDC has also led to a rise in a form of fraud known as double presentment. In this scheme, a fraudster deposits the same check in legitimate bank multiple times, typically through a combination of digital and traditional deposit methods, leading to a substantial financial impact on both consumers and financial institutions.
Synthetic identity fraud is also becoming more prevalent in the realm of check fraud. In this increasingly common fraud method, criminals combine real and fabricated information to create a new, fictitious identity.
The fraudster then uses this synthetic identity to open bank accounts, steal checks, apply for loans, or request checks. While these accounts often remain dormant for some time to build credibility, once trust very own account has been established, the fraudster begins to cash fraudulent checks or take out loans that are never repaid, leaving banks to bear the losses.
Spotting the Red Flags of Check Fraud
Inconsistent signatures or typography: Sudden variations in the person receiving handwriting, signature, or the check’s printed details could indicate tampering and warrant closer scrutiny.
Mismatched routing numbers: An invalid routing number or one that doesn’t correspond to the stated account holder or bank is a common sign of a fraudulent check.
Unexpectedly high check numbers: For personal accounts, a high check number (like 500) is uncommon and could suggest fraudulent activity.
Lack of security features: Checks are typically equipped with numerous other security features such as watermarks, microprinting, and color-shifting ink. Their absence is a clear warning sign.
Errors in the printed information issuing bank has: Misprints, incorrect details, or spelling errors, especially in the bank’s name or address, are notable red flags.
Urgent transactions: Fraudsters often exert pressure on victims to expedite the wire transfer and clearing process. Beware of these requests and handle such cases with extra care.
Preventing Check Fraud
Indeed, a personal check carries a significant amount of valuable information, such as an account holder’s name, address, bank name, and bank account and routing numbers. This wealth of information can be misused to perform illicit transactions, online purchases, or even generate counterfeit checks.
Therefore, maintaining robust security protocols, promoting secure handling of checks, and ensuring online banking transactions are performed over secure, encrypted connections should be prioritized.
Moreover, fostering a culture of continuous education and awareness among bank employees and customers about emerging fraudulent techniques and preventive measures can play a significant role in mitigating the risk of check fraud. The fight against check fraud calls for an institution-wide commitment to security and vigilance.
How Can FIs Protect Bank Account Holders
Further, it’s essential to empower and educate account holders, as they are the first line of defense against check fraud.
Account holders should be made aware of the potential risks involved in sharing their banking details. There are perils of cashing checks from unknown sources and the common signs of fraudulent activity. Implementing awareness programs can significantly decrease the chances of customers falling prey to scams and help in early detection of fraudulent activity.
Lastly, regulatory bodies and FIs must work in close collaboration to mitigate check fraud. Regular updates to regulatory guidelines based on new and emerging threats can significantly curtail these activities. Strengthened regulations, coupled with innovative technological solutions and customer awareness, can provide a holistic approach to combating check fraud. As we navigate the evolving landscape of financial transactions, it’s imperative to remain vigilant and proactive in our fight to further protect consumers and ourselves against check fraud.
As deposit channels expand, from mobile/remote deposit capture to ATMs and ITMs, and more in-person banking is conducted as the world returns to a post-pandemic normal, financial institutions will be under increasing pressure to get check fraud protections right. To do so, financial institutions will need to implement an array of solutions that focus on every point of presentment. This includes applying the same type of processes and rigor across deposit channels, from remote to mobile, to the front line.
Consortium and Contributed Data
The gold standard in improving check fraud protections includes using better, more accurate data. One way to solve this is to take a cooperative approach. This can be achieved by sourcing and contributing to a shared check fraud database.
Now is not the time for financial institutions to disregard the threat of fake check scams. As we exit the pandemic, fraudsters will continue to lean on check as one of easiest ways to scammer dupe consumers and financial institutions alike.
The Way Forward
In conclusion, preventing check fraud is no small task for a financial institution. It demands significant investment in advanced technologies, vigilant monitoring, continual adaptation to emerging threats, and a robust culture of security awareness among employees and customers alike. With the ever-evolving check fraud schemes, maintaining this level of vigilance can be an overwhelming challenge. But that doesn’t mean financial institutions must confront this threat alone.
Partnerships can be instrumental in combating check fraud effectively and efficiently. A trusted partner like Advanced Fraud Solutions (AFS) offers the expertise, experience, and advanced solutions and services necessary to mitigate the risks associated with check fraud.
TrueChecks®, a leading commit check fraud, product from AFS, presents an industry-leading solution to counter check fraud. This real-time check fraud prevention tool is designed to stay ahead of the curve, offering insights into the latest fraud trends, and ensuring that your institution has a robust and responsive line of defense against this ongoing threat.
TrueChecks® provides immediate check deposit decisioning, reducing the potential for check fraud and associated losses, and giving peace of mind to both the financial institution and its customers. Its vast database of high-risk items, frequently updated to reflect the current fraud landscape, makes it a crucial tool in the fight against check fraud.
Navigating the complex landscape of check fraud can be a formidable task. However, with a partner like AFS and a tool like TrueChecks®, financial institutions can protect their operations, their reputation, and most importantly, their customers. Because in the end, a financial institution’s strength lies not just in its ability to facilitate transactions, but also in its ability to secure them. The battle against check fraud is a challenge, but with the right ally and tools, it’s one that we can certainly win.
