A write- up in PaymentsSource penned by FICO has a sobering summary of figures regarding deposit fraud from an American Banker survey from 2018 data, including this one on check fraud:
The American Bankers Association’s 2019 Deposit Fraud Survey found that in 2018, check fraud accounted for 47% or $1.3 billion of industry deposit account fraud losses.
Other studies show that figure to be higher, but regardless of the source of information, check fraud is a problem. In the age of faster payments, checks can become more problematic. Checks are still slow to process and clear while access to funds from a check are expected to speed up as other payments offer quicker and even instant transactions. As an example, banks will give access to a check deposited via mobile remote deposit capture long before it is known if the check is any good.
The article outlined some scenarios that are becoming all too familiar as slow checks meet a faster payments world. Here’s an example:
A criminal’s main method of committing deposit account fraud takes advantage of the time during which funds are still clearing. The fraudster may deposit a check into an account under their control —sometimes involving yet another crime, check fraud—and then withdraw or transfer the money before the bank realizes the check is bad and the funds are not actually available.
Criminals often involve an innocent party in their scheme. This practice, commonly called a “money-mule” scam, has unsuspecting and legitimate consumers move funds for the fraudster.
Here’s one example of how that may play out. A nice person approaches you on the street and asks you to cash a check for them. They are from out of town, their ID card and wallet were stolen, and they have to get home. You have empathy for this person, so you agree, and you deposit the check into your account and give them the cash. While you walk away from this transaction feeling that you did a good deed, just a few days later, your bank contacts you to let you know that the check that you deposited was returned for insufficient funds.
Overview provided by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group.