Check floating and counterfeiting are among the many types of check fraud you have to worry about. Almost 75 percent of companies were targets of payment fraud in 2015, according to a March 2016 report by the Association for Financial Professionals. And by far the most defrauded payment method was checks, responsible for 45 percent of all money lost to fraud.
Check fraud is the illegal stealing of an account number to write false checks in the account holder’s name. Check fraud is a major problem that can happen to anyone, so it’s vital to understand how it happens and how you can prevent it from happening to you.
Types of Check Fraud
It’s a good thing that checkbooks are becoming extinct, because there are many dangers when paying with them. Still, even in the current age of online and mobile banking, there are several types of check fraud you should be aware of when you carry a checkbook around.
The danger of personal checks is that one single check can contain a person’s whole financial story. Checks display plenty of personal information including a bank account number. With this information, anyone can take over your account or purchase items with your money.
Frank Abagnale, the infamous check forger who inspired the film “Catch Me If You Can,” explained the danger of checks in a May 2008 interview with U.S. News & World Report. “On that check is my name, address, phone number, my bank’s name and address, my bank account number, routing number, and my signature,” Abagnale said. A store clerk would typically also write on the check the account holder’s driver license number, date of birth and sometimes, his Social Security number.
Abagnale said that one doesn’t know what happens to the check after a store clerk has it. “What I do know is that anyone who sees the front of that check has more than enough information to draft on my bank account,” said Abagnale.
So that you can better protect yourself from being a victim, know the different forms of check fraud. Here are seven ways criminals can commit crimes with checks:
Many websites allow for the purchasing of items with your bank’s name, routing number, account number and billing address. But not all sites guarantee that they verify the true identity behind these accounts, so someone with your checking information could make fraudulent purchases.
Account takeover is one of the more prevalent forms of identity theft. Account takeover happens when a thief gets a hold of your financial information then changes the mailing address and wipes your bank account clean before you even realize a cent is missing.
When a person writes checks on a checking account that he knows is closed, this is known as paperhanging. Paperhanging can also refer to the reordering of checks on closed accounts.
Check washing was a major problem in the past, and it still exists today. Many inks are easy to remove from checks, allowing the thief to write in a different amount. If you do not have the means to prove that you never wrote the stolen check, then you could be held liable for the amount for which the check was fraudulently written.
Check kiting is the opening of accounts at two or more banks, and then taking advantage of the time it takes for checks to clear and creating fraudulent balances. Check kiting results in the false inflation of an account balance, therefore allowing checks that wouldn’t clear to do so.
For example, a criminal has one checking account with a balance of $100, then writes a check from that account for $300 and deposits it into a second checking account. Before that deposit can be processed with the first checking account, the criminal withdraws $300 in cash from the second checking account before the check bounces.
Counterfeiting and Alteration
Counterfeiting a check can be done in two ways: the fabrication of a check, using advanced publishing equipment, or the duplication of a check, using advanced photocopiers. Check alteration is the use of chemicals to break down the writing on a check and alter the information on it.
Businesses are the most common victim of forgery. An employee will take a check from his employer; write himself a generous sum of money, and cash it using a fake ID and credentials.
Checks Can Make You a Danger to Yourself
One more possible danger of carrying and using checks is the danger of yourself to your own finances. Checks can be used to pay for items at the time they’re written — even if the checking account doesn’t actually hold enough funds to cover the amount of the check.
But writing a check when you know you don’t have the money — and hoping to have a bigger balance by the time the check finally clears — is is a dangerous practice. Writing checks for funds you don’t have is financially irresponsible and also a type of fraud that can lead to bounced checks, bank overdraft fees and other charges that can put your checking account and savings at risk.
How to Protect Yourself From Check Fraud
The best way to prevent check fraud and protect yourself from the dangers posed by personal checks is to stop using them, which is not a hard thing to do in this age of online and mobile banking. Learn how to pay bills online through your bank account, which is actually safer and more secure than sending a check, a lot less time-consuming, and saves on postage costs.
If you insist on writing a check, you should exercise caution to prevent check fraud from happening to you. Check fraud frequently occurs due to carelessness when handling mail, so using a locked mailbox could be a good idea for reducing the chances of check fraud.
Take a few other cautionary measures against check fraud if you still use checks:
- Only write checks to secure and trustworthy individuals and companies.
- Mail your checks in a secure manner or deliver them in person.
- Use a gel pen or have your checks printed to prevent check washing.
- Balance your checkbook every month without fail. Over 50 percent of Americans fail to open their bank statements every month, and although you might get away with that, you still run the risk of being a victim of check fraud — and never even know it.
- Cut down on the number of checks you’re writing. Writing a check to pay your credit card bill is one thing; writing a check to pay the cashier for your weekly groceries might be a risk.
Signs of Check Fraud
You can distinguish legitimate checks from fake checks in several ways. Some anomalies might come up in the process of check writing, so the presence of one of these signs is by no means a sure indication of a bad check. But if more than one or two of the following signs are present, you should be wary of a possibly counterfeit check:
- The check lacks rough edges or perforations.
- The font used to print the customer’s name is different than the font used to print the address.
- The address of the bank or the customer is missing.
- The magnetic ink character recognition code at the bottom of the check is shiny. Real MICR ink is dull and non-glossy, so a shiny, glossy appearance is often indicative of a counterfeit check.
- The check has many stains or discolorations, possibly resulting from the use of altering chemicals.
If you suspect you might have a fake check, you should refrain from cashing it. Report it to the Federal Trade Commission, the U.S. Postal Inspection Service and your state protection agency. If there is reasonable doubt about the authenticity of a check you’re dealing with, it is worth the time to look into possible fraud.
Prevent Check Fraud by Not Using Checks
Personal checks and checkbooks might be going out of style, but the dangers behind them are still alarmingly real and growing. To keep yourself and your finances safe, stay away from checks and opt for alternative payment methods. Today, technology is such that there is no need to carry a checkbook anymore.