How to avoid check fraud, and what to do if fraud happens to you

Young woman on her cellphone in kitchen at home, reporting check fraudImage: Young woman on her cellphone in kitchen at home, reporting check fraud

In a Nutshell

Check fraud cheated Americans out of more than $28 million in 2019, according to the Federal Trade Commission. And young adults are the primary targets of check scams. But learning how to spot check fraud could help keep you from becoming a victim of a check scam.
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You may not pay your bills by check — but you can still be the victim of check fraud.

Even as fewer people are using paper checks, check fraud continues to thrive in the United States. The total amount of attempted check fraud rose to $15.1 billion in 2018, according to the American Bankers Association, accounting for nearly half of bank deposit fraud that year.

Though the ABA says banks blocked 91% of attempted check fraud in 2018, Americans still lose more than a billion dollars to check fraud each year. Let’s review some of the more common forms of check fraud, how you can identify fraudulent check schemes, and what to do if you become the victim of check fraud.



What is check fraud?

Check fraud refers to many different types of scams that involve a fake, bad or altered check. The scammer may send you a check on which they’ve altered the amount or payee name. Or the check may be counterfeit, forged or drawn on closed accounts.

These schemes exploit a federal law that requires banks to make money from check deposits available to account holders in just a few days. But it can take weeks to identify a fraudulent check. At that point, it’s too late — your money is gone.

Types of check fraud

Check fraud can take many different forms. Often, the scammer will send you a fake or bad check to deposit and ask you to send back some of your own money before the bank fully processes the deposit and realizes the check is fake.

Here are a few common ways check fraud happens.

  • Lottery or inheritance schemes — A scammer may contact you saying you’ve won a lottery or other prize or received an inheritance. They send you a fake cashier’s check for a large amount and ask you to pay taxes and fees on the lottery winnings or inheritance.
  • Overpayment scams — Someone may pretend to buy something from you online and then send you a check for more than the asking price or amount requested. The buyer then asks for the overpayment back.
  • Mystery shopping schemes — A person contacts you claiming to be organizing mystery shoppers for a company that sells gift cards or money orders. They send you a check to deposit in your personal account, and then transfer some of the money elsewhere — an accomplice to the fraud. This person disappears with your money.
  • Unsolicited check schemes — You may receive a check in the mail you weren’t expecting, often for only a few dollars. You may think it’s a rebate on something you bought. But in reality, it may be a fake check scam. By cashing the check, you could be unknowingly signing up for a membership or taking out a loan that will draw on your account every month, through a program that’s difficult to cancel.

Who do check fraud scams target?

While people of any age can be the target of fraud, these check scams primarily impact younger adults. The Better Business Bureau says people ages 20 to 29 are the most commonly targeted — and they’re more than twice as likely to lose money to a fake check scam than people 30 and older, according to the FTC. In addition, the 20 to 29 age group reports losing more money to check fraud than any other type of scam.

How could check fraud affect me?

If you deposit a check that turns out to be fake, you’ll likely be held responsible for any money you spent from it. According to the FTC, the median amount lost in a check fraud scheme is just under $2,000, a higher amount than many other types of fraud. That means check fraud can cost you more than just money.

Depending on the circumstances and type of check fraud, you may also be at risk for identity theft. You may need to put a fraud alert on your credit reports. This is free and won’t affect your credit scores, but could lead to delays when you apply for a loan or other form of credit. A fraud alert requires businesses to verify your identity before extending credit in your name.

Of course, the consequences of knowingly participating in check fraud are even more severe. States have different laws about check fraud, what constitutes it and what the penalties are. And bank fraud is a federal crime that can lead to a fine of $1 million or a prison sentence of 30 years, or both.

mncheckfraud2Image: mncheckfraud2

What are some signs of check fraud?

If you’re concerned that an offer being made to you is fraudulent or that you’ve been given a fake check, look for these red flags.

  • You’re asked to buy gift cards or send a money order. Fraudsters often ask their victims to purchase gift cards and then read the PINs to them. Others ask to be sent a money order. Doing either is like sending cash, and it’s almost impossible to get your money back.
  • You’re being asked to pay to receive a prize. A prize isn’t free if you’re being asked to pay for it in any way.
  • You’re paid with a check for more than you’re owed. Don’t accept it.
  • You’re asked to send money overseas. It’s difficult to track down scammers in another country.
  • You’re told you won a sweepstakes you never entered. Be suspicious of being told you won a contest you never entered.
  • You’re pressured to send money right away. Why the rush? The scammers want you to send money before your bank bounces the check.

How do banks investigate check fraud?

Banks don’t want their customers to be the victims of check fraud. The federal Office of the Comptroller of the Currency recommends that banks train their employees on how to prevent check fraud, including how to identify counterfeit checks. Bank tellers are told to watch out for customers asking to split a check between deposit and cash.

If you do become a check fraud victim, your bank will investigate to see if you’re on the hook for the money or if you’re entitled to a reimbursement. While your bank might be held responsible if you deposit or cash a forged or altered check, you’ll generally be the one on the hook for losses. A bank’s FDIC insurance doesn’t cover losses due to theft or fraud.

How can I avoid check fraud?

Besides watching out for the red flags of check fraud, you can take some other steps to avoid becoming a victim.

  • Don’t accept a check from someone you don’t know.
  • Don’t send or wire money to strangers, neither individuals nor companies.
  • Don’t cash a check you’re not expecting.
  • Verify if a cashier’s check is valid before depositing it.

How can I verify a check?

If you receive a check you’re not sure is valid, use caution. Here are some steps you can take to verify if it’s legitimate.

  • Make sure the issuing bank is real. While scammers sometimes use the name of real banks, they may also make up a financial institution name for a fraudulent check. Use the FDIC’s BankFind tool to verify you’re dealing with a real bank.
  • Check with the bank to see if the check is valid. If it is a real bank, look up the bank’s contact information on its official website and contact it. Do not use any phone numbers printed on the check, as they, too, may be fraudulent. The issuing bank will ask you for the check number, date and amount.
  • Investigate the check itself. Most legitimate checks have watermarks or security threads as security features. Scammers may be able to copy these features, but it’s likely they’ll be poor quality.

Next steps: What to do in case of check fraud

If you believe you’re a victim of check fraud, here’s what to do next.

1. Try to stop the payment

It may be too late, but in some cases you can block the money from reaching the scammer.

  • If you were asked to send gift card information, contact the company that issued the gift card and see if it can refund your money.
  • If you wired money, contact the money transfer service and do the same.
  • If you paid by money order, contact the company you used and ask if it can reverse the payment. It’s unlikely it’ll be able to, but it’s important that you make the request.
  • If you sent a money order by mail, contact the company that issued the money order to see if it can stop payment. Also, contact the U.S. Postal Inspection Service to track down the envelope at the post office before it hits the scammer’s mailbox.

2. Report the fraud

Be sure to notify the bank whose name is on the fraudulent check, as well as file a complaint with the website or service where you ran into the scammer. Also consider reporting the fraud to one of these agencies.

3. Start a fraud alert

If you’re concerned about your identity being stolen, place a fraud alert on your credit reports. Contact one of the three credit bureaus, explain the situation and ask them to put a fraud alert on your account. They’ll communicate with the other two credit reporting agencies. Make sure they have your current contact information.

Equifax
Equifax.com/personal/credit-report-services
800-685-1111

Experian
Experian.com/help
888-EXPERIAN (888-397-3742)

Transunion
TransUnion.com/credit-help
888-909-8872


About the author: Andrew Dunn is a veteran journalist with more than a decade of experience as a reporter and editor at North Carolina news organizations, including the Charlotte Observer and the StarNews in Wilmington. In those roles,… Read more.