Check Kiting: How You Can Avoid These Scams
Having insufficient funds in a checking account can result in situations like check bouncing and check kiting. A bounced check can’t be processed because the account holder doesn’t have enough money in the checking account available for payment.
Check kiting adds the element of fraudulent misrepresentation of writing bad checks to increase a financial position at more than one bank. Keep reading to learn how check kiting works and how to avoid it.
What Is Check Kiting and How Does It Work?
To set the record straight upfront, check kiting is a crime. In the simplest terms, here’s how it’s done:
- You write a check from a bank account that has insufficient funds.
- You deposit that check into a second bank account.
- You write a check from that second bank account and deposit it in the original one to cover that first check.
Check kiting takes advantage of the check float, or the time it takes for banks to clear checks. The multiple check writing and depositing makes it appear that the money is in the two accounts and helps the check kiter obtain an illegal, interest-free loan.
The American Bankers Association defines check kiting as floating worthless checks between two or more accounts at two or more banks, creating the impression of having money in the accounts and craftily timing deposits based on the time it takes for checks to clear.
Why Check Kiting Is Illegal and What the Consequences Are
The crime of check kiting involves writing and cashing checks for non-sufficient funds. It typically takes three days for banks to clear checks. A check kiter can even earn nonexistent interest on money that is check kited if they do it repeatedly over time and with serious thought.
Check kiting is a type of federal (felony) or state (misdemeanor) bank fraud punishable by penal codes. Some schemers have been able to operate check-kiting scams for long periods of time.
Check kiting is considered a white-collar crime and carries some serious legal penalties. Even first-time offenders can face fines of at least $500,000 and more than 20 years in prison. Banks may also impose civil charges as legal action to recoup their losses. Penalties are even steeper for large corporations found guilty of check-kiting fraud.
Examples of Check Kiting
Here are different types of check-kiting schemes and how they are carried out.
Circular Check Kiting
- Using multiple accounts at different banks
- Using one or more account holders’ names or a group of account holders
- Writing and depositing checks of increasing value from one account to another, appearing to have sufficient funds
Corporate Check Kiting
- Involving millions of dollars to borrow funds or earn interest in secret
- Usually carried out by corporations without too many limits on their bank deposits
Endless Check Kiting
- Using the name, logo, and address of one bank and the routing number of a different bank
- Causes a potentially endless cycle of check returning from bank to bank
Retail-Based Check Kiting
- Involving an entity other than a bank to unknowingly offer funds temporarily to an account holder
- Example: Writing a check at a store for more than the purchase price to get cash back without sufficient funds in the account to cover the amount of the purchase
Ways To Spot Check-Kiting Activity
Not all seemingly unusual banking activity can be categorized as check kiting. But some telltale signs can alert bank tellers to watch out for potential check kiting. Some banking activities include:
|Activity||Why It Could Be Check Kiting|
|ATMs||Frequently making deposits|
|Deposits||Several per day|
|Bank branches||Frequently using different ones|
|Account balances||Frequent inquiries|
|Withdrawals||More frequent than deposits|
|Overdrafts||Covered with checks and not cash|
|Deposits and checks||Many deposits drawn from the same bank; many checks made payable to the same person|
How To Avoid Becoming a Victim of Check Kiting
Banks are not exclusively prone to check-kiting scams. Individuals can also fall prey to such fraud. To avoid having check kiting happen to you, consider the following advice:
- Restrict access to your checks to one person or only to certain people.
- Only accept checks for the exact amount of money owed to you.
- Investigate out-of-sequence cleared checks.
- Only refund overpayment after checks have cleared.
Not everyone who writes a check with insufficient funds in the bank and hurries to try to cover the check is a kiter. Check kiting becomes a criminal act when it is intentional with the expectation of using trickery, deceit, swindling or deception to gain something of value.
Remember that check kiting is intentional. Check-kiting scammers are usually skilled in knowing the check clearing process and take advantage of that knowledge by timing check deposits and withdrawals before banks catch on. These schemes can result in millions of dollars in bank losses.
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- Greg Hill & Associates. "What Is Check Kiting? The Defenses? The Punishment?"
- Collateral Base. "How To Stop Check Kiting Scams."