The resurgence of check fraud on a grand scale

Rising Organized Crime: Check Fraud is on the Increase

Check fraud is on the rise, with small businesses and individuals increasingly becoming victims as organized crime increases. The U.S. Postal Inspection Service reported roughly 300,000 complaints of mail theft in 2021, more than double the prior year’s total. Meanwhile, banks issued roughly 680,000 reports of check fraud to the Financial Crimes Enforcement Network, also known as FinCEN, last year.

Government Relief Checks Became a Target for Criminal Activity

During the early pandemic, government relief checks became an attractive target for criminals. As cases of check fraud continue to rise, postal authorities and bank officials are warning Americans to avoid mailing checks or to use a secure mail drop such as inside the post office. Victims are waiting longer to recover stolen funds.

Check Usage in Decline for Decades

Check usage has been in decline for decades as Americans largely switch to paying for services with credit and debit cards. Americans wrote roughly 3.4 billion checks in 2022, compared to nearly 19 billion in 1990. However, the average size of the checks Americans write rose from $673 in 1990 to $2,652 last year.

Sophisticated Criminals Responsible for Modern Check Fraud

Today’s check fraud criminals are not small operations or individuals acting alone. Instead, highly sophisticated criminal operations are responsible for the majority of check fraud. These operations infiltrate post office distribution centers, set up fake businesses, or create fake IDs to deposit checks. “Walkers,” or people who cash these checks, receive training in how to appear even more legitimate.

The Common Types of Check Fraud

The most common type of check fraud is known as check washing, whereby a criminal steals a check from the mail and changes the payee’s name on the check, along with the amount of money. Criminals are also using the information on a check to obtain sensitive personal data on a potential victim. Reports have emerged of criminals creating fake entities from the personal data obtained from a check. They then open new lines of credit or businesses with this data, allowing them to create new checks using old account data.

Additional Safety Measures to Take

Check fraud experts recommend that Americans avoid sending checks through the mail or, at the very least, take additional safety steps to avoid becoming a victim. For example, if a check must be mailed, it is best to avoid using a residential mailbox and raising the flag to notify the postman. Instead, individuals should drop off checks inside a post office.

Preventing Check Fraud

Banks, aware of the problem, are increasingly vigilant for signs of check fraud at branches and through mobile check deposit services, such as large check deposits. They train branch employees to take steps such as looking at check numbers, as checks are typically written in order, or noticing when a check is being written for a much larger amount than the customer’s previous history would indicate. Banks also deploy software at their branches that can determine how risky a check might be. However, these systems become moot if criminals are able to persuade tellers to look past any red flags.

Refunds Slowing Down Due to the Growing Number of Fraud Cases

Banks generally reimburse customers if they are victims of check fraud within days. However, due to the growing number of fraud cases, refunds have slowed down in recent months. In March, three Democratic senators asked the banking industry to be more prompt in reimbursing victims of check fraud wherever possible.

Businesses Can Opt in to Positive Pay Services

Another safety tip for businesses is to opt in to a bank’s “positive pay” services with a business checking account. Positive pay means pre-authorizing checks for a certain amount, as well as the check number, cutting down on criminals’ ability to wash the check and withdraw money for an unauthorized amount.

Conclusion

Check fraud is on the rise and is increasingly impacting small businesses and individuals. Organized crime operations are highly sophisticated, infiltrating post office distribution centers, creating fake businesses and IDs, and stealing sensitive personal data obtained from checks. To avoid becoming a victim, individuals should avoid mailing checks through residential mailboxes or taking additional safety steps. Businesses can opt into positive pay services for additional protection. Banks are also taking steps to identify signs of fraud; however, the problem persists as criminals pressure bank tellers to overlook red flags and refunds have slowed down due to the growing number of fraud cases.