Although paper check use is declining, check fraud is still popular. In fact, according to some surveys, check fraud is the second most damaging type of scam after home improvement scams. Typically, check scams require the victim to deposit a check in their account, withdraw money, and send the funds to a scam artist. Once the victim finds out the check was bad, their money’s gone and utterly irretrievable. Here’s a look at how these scams work.
Using the Float
All of the scams that start by having the victim deposit funds into their bank account rely on the float. As you know, the float is the time from when the check is deposited to when the bank realizes it’s valid or not. Under federal law, financial institutions are required to credit accounts with all or a portion of the check’s face value, and banking customers can make withdrawals from their accounts based on these deposits. If the check is valid, it clears and the funds are available as usual. If the check is not valid, the pending credit disappears.
Convincing the Victim
To convince the victim to take these steps, fraudsters use a variety of different techniques. The fraudster may appeal to the victim’s sense of social justice or their love for royalty. They may say that they are a prince who’s been rejected by their family. Then, they claim that their family is corrupt, and they need to get money out of the country. If you agree to help, they’ll send you a money order or a check, and you just need to deliver some of the funds to their representative in your country. As a thank you, you can keep the change.
Sometimes, these scam artists prey on their victim’s desire to get a job. In the secret shopper scam, the fraudster emails the victim about an opportunity to work as a secret shopper. All they need to do, the email explains, is deposit a check into their account, and then test out a few money wiring services with cash from the check. Again, they can keep the change for their work, but predictably, the check isn’t valid, and the victim loses all that money.
In some cases, the scam artist reaches out to someone who’s selling something. Then, they “accidentally” write a check for over the purchase price and they ask for change. By the time the goods have been handed over and the change has been distributed, the scam artist has disappeared, and the check has bounced.
Looking at the Losses
As you can see, scam artists try to find vulnerabilities in their victims. They prey on people who are looking for work opportunities or trying to build their business, or they take advantage of the people who are kind enough to help a disowned prince. According to the BBB Institute for Marketplace Trust, the average victims are men between the ages of 18 and 24, and students, military families, and veterans are some of the most targeted groups. On average, victims lose about $275 per scam, but with these scams that start with a deposit into the victim’s account, the median loss is about $1500.
Preventing Check Deposit Scams
Financial institutions are not directly responsible for these scams. When customers deposit checks into their accounts, they bear the ultimate responsibility. However, in situations where the customer incurs a lot of fees and their balance falls below zero, they may end up closing the account and leaving the bank with the loss.
To protect your customers and your financial institution, you should focus on these three safety essentials:
- Don’t accept checks over the amount
- Don’t issue cash based on a check payment until the check has cleared
- Don’t wire or give money to people you don’t know
Make sure your customers know about these safety rules. Also, train your tellers to spot fraudulent checks. If they get a weird feeling about a check, they should ask your customer about its origins. A few potentially awkward questions upfront can help to prevent your customers from losing hundreds or thousands of dollars in a scam.
Bank scams are constantly evolving. Fraudsters are always looking for new ways to get money from you or your clients. To protect yourself, you need education, but you also need strong fraud protection tools that are designed for the unique needs of financial institutions. To learn more, contact us at SQN Banking Systems.