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101 Facts About Check Fraud

Scam artists use all kinds of tricks to get money from their victims, and checks are at the heart of a lot of scams. Curious about check fraud? Wondering how perpetrators pull of these schemes? Then, check out this list of 101 facts about check fraud.

  1. Check fraud refers to any type of fraud that relies on paper checks to steal money from individuals or businesses.
  2. Check fraud is the second most common type of bank fraud, after debit card fraud.1Check fraud
  3. Although check use is down overall, the Federal Trade Commission has received more complaints about check fraud in the last three years.2
  4. Banks can hold checks for three days, but just because a bank releases a hold doesn’t mean the check has cleared yet.
  5. If you receive an email about a potential check scam, you can forward the email to the FTC at spam@uce.gov.
  6. Check fraud accounts for 35% of bank fraud.1
  7. Banks noticed and stopped about $5.9 billion in check fraud in 2016.1
  8. Banks suffered from $789 million in check fraud in 2016.1
  9. In 2016, check fraud had its first increase since 2008, surging by 28 percent.1
  10. Approximately 1.2 million bad checks go through the check processing system every day.2
  11. In 1995, Americans wrote $51 million in bad checks every day.3
  12. Annually, about 500 million checks are forged every year.3
  13. Forged checks lead to about $10 billion in total annual losses.3
  14. The Z-method refers to looking over a check from the top left corner to the top right corner, through the body of the check down to the bottom left corner, and over to the bottom right corner.
  15. In the decade between 2003 and 2012, checks were replaced by debit cards and ACH as the most popular payment methods for transactions around the world.
  16. Although check use is declining, businesses still use checks for 51% of B2B transactions.4
  17. Even the government has reduced use of paper checks, by issuing Social Security payments, unemployment benefits, and most tax refunds as direct deposits.
  18. On average, businesses incur costs of $4 to $20 for every check they write.
  19. Paying by check is more susceptible to fraud than any other kind of payment.
    Paying by Check
  20. Over two thirds of businesses (71%) reported dealing with fraudulent checks in the last year.4
  21. Of the businesses that received bad checks, 44% reported dealing with one to five incidents.4
  22. About 22% of businesses dealt with bad checks six to 10 times.4
  23. Every year, half a million Americans fall victim to fake check scams.5
  24. In one popular scam, thieves convince victims that they have been selected to become a secret shopper. They are instructed to review a money wiring service. They receive a check, and they are supposed to deposit the check and wire the funds to a certain recipient. However, after they wire the funds, the check bounces, and the victim has lost all that money.
  25. Often, scam artists invent an excuse for giving someone a check written over the amount. Then, they convince the victim to give them change for the extra amount. Ultimately, however, the check is no good, and the victim loses the funds they paid out.
  26. When victims deposit fraudulent checks into their accounts, they may end up writing personal checks against that amount. Then, when the fraudulent check turns out to be worthless, they may face fees and penalties for the bad checks they wrote.
  27. Because of that, sometimes the victims of check fraud end up being accused of fraud as well.
  28. In most cases, when you deposit a check into your account, you are personally liable if the check is bad and you spend money against it.
  29. Banks are not liable for most bad checks.
  30. The bank may be liable, if its employees allow a thief to cash forged checks against your account.
  31. However, if the bank can establish that the customer was negligent in how they kept their checkbook or account information, the bank may be able to shift liability for forged checks to the customer.6
  32. On average people who fall victim to these check fraud scams lose about $2,400.7
  33. Check washing is when criminals use chemicals to erase the ink on a check, and then, they rewrite the check to another party for a different amount.
    Check Washing
  34. Sometimes, check washing is called chemical alteration.
  35. Between 2007 and 2009, two ringleaders worked with 950 people to steal $1.4 million in fraudulent checks from New York banks, arguably one of the nation’s biggest check fraud schemes of all time.8
  36. When an account holder purposefully writes a bad check from their own account, that is called paperhanging.
  37. Check kiting is when an account holder writes a bad check from one account and deposits it in another account to make the second account look as if it has a positive balance.
  38. As float time has decreased, kiting has become less common.
  39. If you write a check a couple days before you have the funds and hope that the check doesn’t hit your account, that is called floating a check.
  40. Businesses watch customers who frequently write checks over the amount because they get concerned that the customers may be writing bad checks to take advantage of the float time.
  41. Forging a check refers to faking the account holder’s signature.
  42. Counterfeiting a check is when a thief prints a check with the victim’s name and account number, and then, writes it out to themselves or uses it to buy items.
  43. When someone opens a checking account in another person’s name, that is identity theft.
  44. Some scam artists offer victims a money order in exchange for a check, but then, after the scammer takes the money from the check, the money order turns out to be fake.
  45. Magnetic ink character recognition (MICR) is a special type of magnetic ink that is often used on checks to streamline processing and reduce fraud.
  46. If an account holder doesn’t have enough funds in their bank account to cover a check, their bank may accept the check or return it.
  47. When banks accept checks that make an account become negative, they charge an overdraft or insufficient funds (NSF) fee.
  48. On average NSF fees are about $35.
  49. If a bank returns a check, they assess a bounced check fee.Bounced Check Fee
  50. Merchants may also charge customers fees for writing bad checks. Generally, when someone writes a check to a business, they agree that the business can add an additional fee if the check is returned.
  51. ChexSystems track people who have written bad checks or refused to pay banking fees.
  52. Over 80% of banks use ChexSystems to assess the creditworthiness of new account holders.9
  53. ChexSystems keeps most reports for about five years.
  54. Consumers receive a score ranging from 100 to 899, with higher scores being the best.
  55. Organizations lose an average of 5% of their revenues to different type of fraud every year.10
  56. While large corporations are likely to lose money through corruption, small organizations are more likely to face losses due to check tampering, skimming, and payroll fraud.
  57. Fraudsters only need an account and routing number to commit ACH fraud.
  58. The account and routing number is clearly printed on every single paper check, making it relatively easy to access.
  59. Robbing a national bank or any member of the FDIC became a federal crime in 1934.
  60. Usually, writing a bad check for over $500 is a felony.
  61. Bad checks under that amount are usually a misdemeanor.
  62. If you’re caught writing a bad check in Los Angeles, you may have to go to personal finance classes through the bad check restitution program.11
    Bad Check
  63. As a general rule of thumb, you have up to a year to notice a forged check on your account, and the bank may accept liability during that time.
  64. If there are multiple forged checks, you usually need to report that within a month, but the rules vary from bank to bank.12
  65. In January 2019, a couple of thieves printed fake checks using information from two accounts based in North Dakota, and they wrote checks for $48,500 in Alabama and $32,600 in New Jersey.13
  66. The CEO of Synergy was convicted in a $1 billion check kiting scheme.14
  67. The defendant wrote $1.3 billion in checks and the bank lost $26 million before uncovering the scheme.
  68. The punishment for this check kiting scheme was 30 years in prison.
  69. In Cleveland, three women wrote approximately $165,000 in fraudulent checks, and they were able to withdraw $120,000 before getting caught.15
  70. Although these women didn’t try to steal as much as the CEO, they were able to reap a higher portion of their fraudulent checks than he was.
  71. They convinced co-conspirators to open bank accounts. Then, they deposited fake checks into the accounts and made large cash withdrawals at a local casino.
  72. By the time, the banks realized the checks were fraudulent, the accounts were overdrawn, and the banks were left holding the empty bag.
  73. For attempting to kite $1.3 million in bad checks, Texas entrepreneur Jeff Woodard received 30 years in prison, a million dollar fine, and five years of supervised release.
  74. In the past, banks took manual measures to detect check kiting schemes.16
  75. After receiving piles of returned checks from the Federal Reserve, bank auditors went through the ledgers to see if daily deposits differed from daily balances. Then, they analyzed account activity and deposit slips, and if they noticed a potential history of check kiting, they closed the account.17
  76. Check 21 refers to the Check Clearing for the 21st Century Act.18
  77. In 2003, this law gave banks the right to create electronic copies of consumer checks.
  78. This process is called check truncation because it truncates (shortens) the information on the check so that it can be processed more quickly and doesn’t have to be physically transported to another bank.
  79. Some speculate that ancient Romans used checks as far back as the 4th century.Check Clearing
  80. Arguably, checks were first used in the western world in the 1500s in Holland.19
  81. On the Silk Route, Muslim traders used checks because they were more practical than carrying around bags of metal coins.
  82. Europeans picked up the tradition from Muslim traders during the Crusades.
  83. People deposited their funds with Dutch cashiers for safe keeping. Then, they issued written orders or notes that the cashiers should pay some of their debts or bills. This practice was one of the first uses of paper checks.
  84. Due to being handwritten, early checks were highly susceptible to fraud.
  85. Many European cities banned checks, and banks often required both parties (the check writer and the recipient) to be present to cash a check.
  86. In the colonies, people first began using checks in 1681 nearly 100 years before the formation of the United States.
  87. In the United States, checks are older than paper money.
  88. The nation didn’t begin printing paper notes until after the Civil War.20
  89. In the mid-1700s, British banker Lawrence Childs began printing numbers on these paper notes as a way to “check” on their authenticity.
  90. Then, this usage of the word check entered the English language.
  91. At this point, the word check came to mean “examine the accuracy of something,” but over the next few hundred years, it evolved to refer to a paper check.
  92. Prior to that, the word check was mostly only used in relation to putting the king into check while playing Chess.
  93. In the United Kingdom, paper money didn’t become popular until after World War I. By that time, checks had been in use in the country for over 200 years.Paper Checks
  94. Although checks were numbered for decades, banks didn’t start using account numbers until well into the 20th century, after computers entered the world of finance in the 1960s.21
  95. Banks present checks they have received to the Federal Reserve System or to a private clearing house. Then, that third-party handles the process of presenting the checks to the bank that owns the account attached to those checks.
  96. In 2003, the Federal Reserve cleared paper checks at 45 locations.
  97. Now, the Fed clears most checks electronically and only has one location for clearing paper checks.
  98. The concept of a clearing house started when two messengers with checks with different banks, bumped into each other at a London coffee shop and decided to exchange the checks there, rather than continuing onto the bank in person.
  99. Fifteen percent of Americans use checks regularly, and the number is expected to stay consistent through 2020.22
  100. Three percent of people think checks are the best way to pay.23
  101. However, even those people use cash more often than checks.
  1. https://bankingjournal.aba.com/2018/01/aba-report-banks-stopped-nearly-17-billion-in-fraud-attempts-in-2016/
  2. https://www.consumer.ftc.gov/blog/2018/09/anatomy-fake-check-scam
  3. http://www.ckfraud.org/statistics.html
  4. https://www.cuinsight.com/surprising-stats-prove-check-fraud-not-ignored.html
  5. https://www.nbcnews.com/better/business/scammers-use-fake-checks-steal-tens-millions-dollars-each-year-ncna906521
  6. https://www.helpwithmybank.gov/get-answers/bank-accounts/forgery-and-fraud/faq-banking-fraud-02.html
  7. https://www.acfe.com/rttn2016/about/executive-summary.aspx
  8. https://nypost.com/2009/05/27/authorities-announce-check-fraud-bust/
  9. https://www.nerdwallet.com/blog/banking/blacklisted-by-chexsystems-what-to-know/
  10. https://www.nclnet.org/meet_the_top_ten_scams_1_fake_check_fraud
  11. https://www.credit.com/personal-finance/what-you-need-to-know-about-bounced-checks/
  12. https://www.helpwithmybank.gov/get-answers/bank-accounts/forgery-and-fraud/faq-banking-fraud-03.html
  13. https://bismarcktribune.com/news/local/check-fraud-strikes-local-victims/article_4915bb7b-65d1-508c-8f8a-c4ea908b8add.html
  14. https://www.lexisnexis.com/legalnewsroom/financial-fraud-law/b/blog/posts/jury-convicts-ceo-in-1-billion-check-kiting-scheme
  15. https://www.justice.gov/usao-ndoh/pr/three-cleveland-women-indicted-165000-check-kiting-scheme-0
  16. https://www.bankinfosecurity.com/texas-man-guilty-1-million-check-kiting-scheme-a-2168
  17. https://www.americanbanker.com/opinion/how-banks-used-to-spot-check-kiting
  18. https://www.investopedia.com/terms/c/check_21.asp
  19. https://www.infoplease.com/business-finance/personal-finance/brief-history-checking
  20. https://fin.plaid.com/articles/checking-out-a-brief-history-of-checks
  21. https://fin.plaid.com/articles/history-account-routing-numbers
  22. https://fin.plaid.com/articles/checking-out-a-brief-history-of-checks
  23. https://fin.plaid.com/articles/checking-out-a-brief-history-of-checks