Check Fraud Remains a Risk Despite Decreased Use

By Grace Austin
Inside Subprime: December 19

Check fraud remains a risk, despite decreased use among many American consumers.

A North Carolina-based fraud detection firm released a new white paper, “The Changing Landscape of Check Fraud.” The paper shows how new ways to deposit money to better serve consumers has made check fraudsters even smarter.

“As technological advances and digitization in payments processing evolves, so too does the landscape of check fraud,” the white paper said. “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 practices.”

Despite check use declining overall (less than half of business-to-business transactions are through checks, an all-time low and a 30% drop from 2007), check fraud is an ongoing and pervasive issue. Last year, 70% of U.S. organizations reported check fraud, losing a total of more than $18 billion. For large businesses, that number was even higher — at 87%. And globally, paper check use continues to be the leading method for business-to-business transactions.

The Better Business Bureau reports that the average loss from check fraud is $1,500 per individual transaction.

New technology is making it easier for fraudsters to make fake checks. And fake check scams are reportedly growing — complaints by government agencies and consumer advocacy organizations doubled from 2014 to 2017, according to the Better Business Bureau.

As CNBC reported, there are many different fake check schemes, but they often work the same way, with victims depositing a phony check and sending some of the money back to the criminals. Once the counterfeit check bounces, the account holder is actually responsible for it when the bank seeks to recover the funds.

In addition, depositing a check no longer requires an in-person transaction. Advanced technology now makes mobile remote deposit and kiosk deposit available, leading to more check fraud attempts, the white paper claimed.

For example, AFS reports that some scammers will make a remote deposit through a phone and then go in-person to a bank and deposit the same check. Tellers will end up cashing out the funds, since the check hasn’t been cleared yet, leading to a loss for the bank or credit union.

If someone offers to send money but then requests that the money be sent elsewhere, that should raise a red flag for consumers. And for businesses, new anti-fraud technology is being created to provide more security steps, helping those at financial institutions better recognize check fraud.

For more information on scams, predatory lenders and payday loans, see our city and state financial guides including states and cities like California, Texas, Illinois and more.