Check Fraud Glossary

There are numerous words and terms associated with check fraud. To help you gain an understanding of the essential phrases, here’s our check fraud glossary.

• ACH Checks — Electronic payments made through the Automatic Clearing House Network, including direct deposit and automatic bill payment.
• Account Takeover — Scam artists take over someone’s checking account by faking their identity at a branch or accessing their online account. Then, they direct all correspondence to their own address and freely spend the money from the account, including writing fraudulent checks.
• Automatic Clearing House (ACH) Network — Run by the National Automated Clearing House Association, the ACH Network is a funds transfer system that helps financial institutions process transactions such as direct deposits, tax refunds, consumer bills, checks, and more. A financial institution takes all its ACH transactions and sends them to the Federal Reserve or a clearing house. Then, the ACH Network sorts the batch of transactions and sends the money to the financial institution of the intended recipient.
• Bad Check — A check written on an account that doesn’t have sufficient funds to cover the amount. Account holders may write these checks purposefully or by mistake.
• Billing Schemes — A scam artist sends fake invoices to a company or individual and demands payment. Often, employees perpetrate billing schemes by drafting checks from their employer’s business to a fictitious company, and they cover up the trail by creating fake profiles in their accounts payable database.
• Bounced Check — A bad check that is returned, or “bounced”, by the bank back to the check recipient. At that point, the recipient can resubmit the check to the bank, or they can attempt to collect the funds from the check writer on their own.
• Check 21 — Short for the Check Clearing for the 21st Century Act.
• Check Alteration — When scam artists alter the information on a check by changing the payee, the amount, or other details.
• Check Clearing for the 21st Century Act — Signed into law in 2004, the Check Clearing for the 21st Century Act sped up check processing time by allowing banks to use substitute checks to process checks electronically. Prior to the implementation of this law, banks had to physically transfer paper checks, and they also sent copies of cashed paper checks to their customers.
• Check Content Analysis Tools — Special software that analyzes the content on a check. Check content includes items added to the check such as amount, payee, and signatures.
• Check Forgery — Check forgery refers to any situation where someone forges a signature on a check.
• Check Fraud — Check fraud is any attempt to commit fraud using a check, including writing bad checks, forging checks, running billing schemes, and countless other fraud attempts.
• Check Kiting — Check kiting essentially uses bad checks as a form of credit. Typically involving two or more accounts, kiting schemes deposit bad checks in one account to make the account balance appear positive. Then, they may move money back and forth between the accounts to keep the balances artificially inflated. Sometimes, kiting schemes are used to buy a few days before payday. In other cases, they are elaborate frauds involving millions of dollars.
• Check Overpayment Scams — In these scams, the thief finds someone who is selling something. They provide a check for more than the amount of the sale price, and they request change. Then, they leave with the cash and the sale item, and when the victim deposits the check, they learn that it is counterfeit.
• Check Stock Analysis Tools — Special software that analyzes the stock information on a check such as account holder details, layout, font, and similar information.
• Check Tampering — Typically a type of internal fraud, check tampering is when employees tamper with the details on a check drawn on their employer’s account. They may change the amount of a check written out to them, erase the payee’s name and put in their own, or change other details.
• Check Theft — Check theft is any situation where someone steals a check. They may steal a check for alteration, or they may steal an entire check book to make purchases or write checks to themselves.
• ChexSystems — Owned by eFunds, a subsidiary of the Fidelity National Information Services, ChexSystems is a consumer credit reporting agency that focuses on consumer misuse of checking accounts. The agency tracks people who have a history of writing bad checks or bouncing checks and assigns them a rating of 100 to 899. Banks use ChexSystems to help them evaluate new customers.
• Civil Penalties — A civil penalty is a fine that check fraud perpetrators may be ordered to pay to provide restitution to their victims for the losses they caused.
• Clearing House — A place where checks and bills from member banks are exchanged. When a customer at Bank A deposits a check from Bank B, Bank A uses a clearing house to get the funds from Bank B.
• Counterfeit Check — A fake check, often used in a scam.
• Digital Checks — Electronic payment orders that work as a substitute for paper checks. Often with apps or special software, consumers can send digital checks to someone using just the recipient’s email address.
• eChecks — An electronic alternative to a paper check.
• Expedited Funds Availability Act — Abbreviated as EFA or EFAA, the Expedited Funds Availability Act was signed into law in 1987. This act outlines how long banks can hold checks before making the funds available. Hold periods vary based on the amount of the check, the age or the account, and several exception categories such as frequent overdrafts or other issues.
• Fair Credit Reporting Act (FCRA) — Sometimes called the Consumer Credit Protection Act, the FCRA legislates how consumer reporting agencies, such as ChexSystems, must deal with consumer information to reduce inaccuracies or privacy breaches.
• Federal Deposit Insurance Corporation — Created by the 1933 Banking Act in the midst of the Great Depression, the FDIC insures deposits at member banks up to certain threshold.
• Fines — When someone is convicted of check fraud, they may face fines. Depending on the extent of the fraud, fines can range from a few hundred dollars to a million dollars in extreme cases.
• Float — The length of time between when a check is written and when the funds are taken from the account.
• Forged Check — A check with a forged signature or a forged endorsement.
• Forged Maker Schemes — When an employee forges an authorized signature on a business check and misappropriated the funds to themselves or a co-conspirator.
• Forged Signature — Falsely replicating the signature of an account holder or an authorized signer on a check.
• Forged Endorsement — When someone falsifies a check recipient’s name on the endorsement line in order to illegally cash a check.
• Hold — When a bank holds deposited funds before making them available to the account holder.
• Identity Theft Check Fraud — When a fraudster steals someone’s identity and opens an account in their name in an attempt to write bad checks or steal funds in other ways.
• Insufficient Funds Fee (NSF) — The fees banks charge when they receive a check from an account that has insufficient funds to cover the check.
• Lottery Scam — In the lottery scam, victims receive notification that they have won a lottery. They receive a check for their winnings and are instructed to pay taxes or fees. By the time, they realize the lottery check is bad, they have already dispatched the funds for the fees or taxes, and they lose that money.
• Magnetic Ink Character Recognition (MICR) — MICR is a special type of ink often used on checks or other documents. It is sensitive to magnetic fields and helps to facilitate electronic processing for checks in the middle of the 20th century.
• Micro-Printing — Check security feature that prints extremely small letters or other details onto a check. The microprint can’t be seen by the human eye, but software can detect if the details are correct or not.
• Money Order Fraud — When perpetrators use money orders to commit fraud on victims.
• NSF Check — A bad check that creates an insufficient funds fee for a consumer.
• Official Check Verification Tools — Special tools that print secure seals or barcodes onto checks. When the checks are presented for payment, the bank uses special software to read the barcode and make sure the information on the check matches the info embedded in the barcode.
• On-Us Checks — A check presented to the check writer’s bank.
• Originating Depository Financial Institution (ODFI) — The entity that initiates an ACH transfer.
• Federal Reserve — The central bank of the United States.
• Overdraft — When a bad check or draft draws an account over its available balance.
• Overdraft Protection — A product offered by many banks that ensures checks and debit transactions are not returned, even if the balance is insufficient to cover the draft. Typically, banks assess a fee for accepting these transactions.
• Paper Checks — A traditional paper check.
• Paper Hanging — Writing bad checks from closed accounts.
• Positive Pay Software — This check fraud protection tool allows business customers to provide a list of authorized checks to their bank. Then, when the bank receives a check written from that customer’s account, special software makes sure the check has been authorized.
• Real-Time Fraud Analysis Tools — Software that analyzes checks, deposits, and other transactions in real time and alerts bankers of potentially fraudulent activity.
• Receiving Depository Financial Institution (RDFI) — The entity that receives the funds from a clearing house transaction.
• Returned Check — When a bank returns a check to the bank that submitted the payment. Also called an NSF check or a bounced check.
• Restitution — In some check fraud cases, thieves are required to pay restitution to their victims to replace the stolen funds.
• Rubber Check — Another name for a bounced check or an NSF check.
• Stopped Payment — If an account holder loses a check or changes their mind about a payment, they can issue a stop payment.
• Ultraviolet Check Image Analysis — Tools that look at ultraviolet ink used on checks to detect chemical alteration or other issues.
• Washing — Washing is when a thief washes the chemicals off a check to change its details.
• Watermarks — A faint design printed onto a traditional paper check and used to verify that the check is real.

Have a question on check fraud vocabulary? Want help with fraud analysis tools? Then, contact us today. At SQN Banking Systems, we offer a suite of products, solutions, and services to help financial institutions fight fraud.