Fake Checks and Online Fraud Are Thriving

CU360
March 6, 2008 | COMMENTS

As every credit union teller knows, financial institutions generally are required to make funds available to members within one to five days of when the check is deposited—even if the check has yet to clear. This law was enacted after consumers complained that banks were holding onto deposits too long.

The law has allowed consumers to access their money more quickly, but it has also provided another avenue for fraud. In what USA Today describes as "a dizzying variety of check scams," fraudsters are sending out checks to consumers and urging them to cash them and wire some of the proceeds back. Because the money appears quickly in consumers' accounts, they assume the check has cleared. It's only later—often after they've already wired money to fraudsters—that consumers learn the check is counterfeit.

As these scams proliferate, regulators, banks, and advocacy groups are launching efforts to educate consumers. The most important advice is also the simplest: Be careful about depositing checks and wiring money to people you don't know.

"There's no legitimate reason for someone to write you a check and then ask you to wire money back to them," says Susan Grant, director of the fraud center at the National Consumers League.

The league, in partnership with financial institutions and the U.S. Postal Inspection Service, has launched a website, FakeChecks.org, to alert consumers to check fraud.

No one knows how much money customers have lost from bogus checks. But last year, banks alone lost $271 million from fake checks—a 160% jump from three years earlier, according to the American Bankers Association (ABA).

Customers are likely losing much more than that from check fraud, according to the National Consumers League, because some consumers present checks at check-cashing centers as well as at banks. All types of check-related fraud cost banks $969 million in 2006, ABA says.

Counterfeit checks have become the second-most-common Internet fraud and the top telemarketing fraud reported to the National Consumers League since it began tracking such scams in 2003. On average, victims lose $3,000 to $4,000 per scam, the league says. More than one-third of 2,000 consumers surveyed earlier this year said had been sent a check in the mail and had been asked to wire money back to the sender. More than 40% said that during an average week, they receive five or more scam e-mails, phone calls, or letters from fraudsters trying to gain access to their bank accounts.

Consumers who are victimized can report their losses to FakeChecks.org or a secure link from the National Consumers League Fraud Center, and file a complaint with their state attorney general, local police department, the U.S. Postal Inspection Service, and the Federal Trade Commission.

Check Scams Thrive Online

Fraudsters also exploit the popularity of online auction, dating, and social-networking sites to find victims. They're creating fake checks to pay for goods advertised online or to convince people they've won sweepstakes prizes.

Online auction sites and social networks are also warning members about these scams. CraigsList —the website where you can find everything from TVs to new friends—warns users about the growing problem of check fraud by posting actual scam e-mails. It also provides tips on how to avoid being fleeced. One such tip: Deal only with local people to avoid 99% of scam attempts.

In one common scam, fraudsters contact sellers at online auction sites, saying they want to buy an item. They say they'll give the sellers a check for more than the sale price, explaining that the excess money must be wired to a third party who will handle the shipping.

The fraudsters often don't bother to claim the item. They just want consumers to wire money to them quickly, before their own checks bounce, says Susan Grant, director of the National Consumers League's fraud center.