Check Fraud: The Old-School Threat You May Be Overlooking

It’s a quirk of human nature that novel things seem more threatening than familiar ones. Driving is more dangerous than flying, for example, but a lot of people who drive in congested cities are reluctant, white-knuckle fliers. They may know intellectually that flying is safer, but it’s not as familiar and therefore not comfortable.

There’s a similar quirk at play when the time comes to pay for things. For many people, checks are old and familiar, and therefore feel safe, while electronic payment methods feel risky and fraud-prone. The reality is rather different: Checks are an innately insecure payment method, and check fraud is a massive problem for consumers and businesses alike.

Checks Are a “Starter Kit” for Fraud and Identity Theft

One of the most fundamental rules for avoiding fraud and identity theft is to protect your sensitive information. For example, common pieces of advice include keeping your financial information in a safe or a locked filing cabinet and never giving out your passwords or banking information to random strangers.

Checks, by their nature, run counter to most security advice. To begin with, they’re pieces of paper that come preprinted with your personal information (full name, address and usually phone number) and banking information; and worse, using them for their intended purpose means handing them out to others. Hacking and online identity theft require technical skills, but check fraud only requires access to a physical check, and you give that to somebody every time you use one.

It’s even worse if a scammer manages to secure a check that you’ve used to make a payment. That provides them with a sample signature — the check’s equivalent of a password — and, as a bonus, whichever piece of ID the cashier recorded when taking the check (often your driver’s license number). Any check in and of itself can be used to commit fraud, and serves as a useful “starter kit” for identity thieves.

Identity Theft and Check Fraud From Personal Checks

There are other forms of check fraud, but we’ll start with the ways scammers can use your personal checks for fraud or identity theft. A criminal who’s got one of your checks — or, heaven forbid, stolen your whole checkbook — can, for starters:

Alter the payment amount on a check you’ve written, potentially looting your account for thousands of dollars
Write checks on your account, by forging your signature
Print their own forged checks using your legitimate check as a template
Using your stolen or forged checks to pay the bills on their fraudulent credit cards
Use the information from your check to create and exploit a synthetic identity.
Match the information on your check with additional personal information purchased online — often for less than the cost of a cup of coffee — and use that combined dossier for full-scale identity theft

There are several ways this can happen. Thieves may steal checks directly from a mailbox or take them along with the cash as part of a robbery. A scammer might accept a check from you directly in payment for odd jobs or a small Craigslist purchase, and then alter it. Malicious employees at a business you deal with might physically steal checks you’ve written. The possibilities are endless.

Other Forms of Check Fraud

There are many other forms of check fraud that don’t involve your personal checks, and those can be costly as well. In fact, the FTC’s 2020 Consumer Sentinel Network Data Book shows that check scams had the highest median cost for consumers, at just under $2,000 per incident.

There are a few consistent methods that fraud artists use, changing the details to suit the use case. A few examples are as follows:

Overpayment for a Purchase

This is a common scam you’ll find on Craigslist and other selling platforms. Your buyer “accidentally” writes the check for a too-large amount and tells you to just transfer the excess back to them. When the check eventually bounces (it can take weeks after it ostensibly clears), you’re out that money plus the value of the item you parted with.

Other Overpayment

There are several versions of this one. Some purport to be a check from a business you legitimately deal with, while others are variations on the “congratulations on winning our sweepstakes!” theme. The payoff mechanism for the scammers is the same: After you’ve deposited the check, the sender will claim you’ve been overpaid in error, or ask you to send back “processing fees” of some sort. Again, after the check bounces you’ll be out whatever money you’ve sent.

The “New Hire” Fraud

There are a couple of versions of this one too. In one, you’re “hired” for a bogus work-from-home job and sent a check as a test payment to make sure your payroll information is set up correctly. You’re expected to verify this by sending money back, which of course is gone forever (and you’ve probably given them your banking information as well). In another variant, your supposed job consists of depositing checks and then distributing the funds by wire transfer. The checks, again, are bogus, and you’re on the hook for those amounts.

The “Stuck Overseas” Fraud

This is a variant of the “new hire” fraud, and a particularly heartless form of romance scam. Your new crush (or in less heartbreaking situations, your new business partner) is out of the country and having difficulty moving money, so would you please deposit this check and disburse the funds by wire transfer? Not only are you on the hook for any amounts you’ve sent, you may actually be helping launder money (and making yourself potentially liable to prosecution).

Check Fraud Is Also a Problem for Businesses

Your concerns with check fraud may begin and end with your own pocketbook, but it’s worth pointing out that it’s also a huge concern for businesses. The 2021 Payments Fraud and Control Survey Report from the Association for Financial Professionals shows that a whopping 66% of businesses were hit with check fraud in 2020. That affects us all, indirectly, because the cost of those losses must be made up.

It’s especially problematic for banks, of course. A recent study by the American Bankers Association shows that check fraud accounted for 47% of all fraud losses from deposit accounts, totaling well over a billion dollars. An even more staggering statistic is that the banks stopped over 90% of attempted frauds, so this number represents just the small percentage that succeeded.

It’s a no-win situation for the banks, who are expected to simply make good on the fraudulent losses. Some may refuse to do that, if they believe your own negligence or gullibility contributed to the fraud (you can file a complaint with the Office of the Comptroller of the Currency if you aren’t able to resolve things with the bank). In practice, Javelin Research has found that only a third of consumers in this situation were happy with how their institution resolved the situation, and 38% closed their accounts as a result.

Avoiding Fraud Involving Your Personal Checks

There are several things you can do to limit the risk of falling victim to the various forms of check fraud. As far as your own checks are concerned, the simplest and best method is to just not use them, wherever possible. Electronic payment methods are easier and more widely accepted than ever before, and often let you use biometric security measures such as facial recognition or your phone’s fingerprint reader in place of a password. Wherever possible, set up bills and other recurring payments to be withdrawn from your account automatically.

You’ll probably still need to keep checks on hand for some purposes, but keep them physically secure — ideally under lock and key — when they’re not actively in use. Many manufacturers make fraud-resistant pens with ink that thwarts removal or alteration, and using one of those for checks is an excellent precaution. Filling out a check properly, with no blank spaces that scammers can take advantage of, also helps (especially in conjunction with a fraud-resistant pen).

When you receive a canceled check from your bank, or deposit a check electronically, be sure to shred the physical item before you put it in the trash. Otherwise, dumpster-diving scammers could still recover it. Finally, and most importantly, keep close tabs on your checking accounts. If you see checks clearing that you didn’t write, that’s a problem. The same holds true when checks you did write aren’t cashed: Contact the company to verify that they’ve received it, and if they haven’t, you should stop payment on the original check and issue a new one.

Avoiding Fraud Involving Third-Party Checks

The other types of check fraud — where you’re the one receiving the check — require different forms of diligence. Sometimes there are physical tells to warn you that a check isn’t legitimate, such as faint traces of other writing hiding behind the letters and numbers you see. Another giveaway is checks from an apparently reputable source that lack the various watermarks, holographs and other security features you’ll find on real checks (with color printers/copiers as cheap as they are, it’s way too easy to copy a check).

Before depositing a check that purports to come from a company you already deal with — especially if it was unsolicited — contact that company directly to verify that the check is legitimate. For personal checks from an online buyer, use Spokeo’s search tools to verify the information on the check. If there are discrepancies in the name, address or phone number, or if the bank doesn’t seem to exist (the FDIC has a tool for checking that), those could be big red flags.

The best defense of all is simply to recognize the pattern that these scams follow, and not fall for the ruse. Instead, report the fake at the FTC’s ReportFraud.ftc.gov website, the office of your state’s attorney general and — if the check came by mail — the US Postal Inspection Service. Instead of falling victim yourself, your input may result in an arrest or at the very least help prevent anyone else from being scammed.

Sources

Fox29 Philadelphia: Suspects in Pennsylvania Mail Theft Operation ‘Washed’ Stolen Checks to Steal Thousands, Police Say

US Federal Trade Commission: Consumer Sentinel Network Data Book 2020

US Federal Trade Commission: How to Spot, Avoid, and Report Fake Check Scams

US Federal Deposit Insurance Corporation: FDIC Consumer News: Beware of Fake Checks

Financial Industry Regulatory Authority (FINRA): Avoiding Fake Check Scams

AARP: Romance Scammer Turns Woman Into Unwitting ‘Money Mule’

ABA Banking Journal: ABA Report: Banks Prevented More Than $22B in Fraud Attempts in 2018

HelpWithMyBank.gov: I Just Received My Account Statement and Noticed There Were Forged Checks…

Javelin Research: Total Identity Fraud Losses Soar to $56 Billion in 2020

Intuit Mint: How to Write a Check (Step-by-Step Guide to Filling Out a Check)

US Federal Deposit Insurance Corporation: Bankfind Suite: Find Institutions by Name and Location