Many victims of check fraud don’t realize it until weeks or months after the compromise has occurred. Unfortunately, by the time many consumers report the incident to their bank, they may be too late to receive reimbursement.
Checks are currently regulated under the Uniform Commercial Code, which states customers have one year to report check fraud. However, the law allows this grace period to be modified in agreements between customers and banks.
In some cases, banks require customers to notify them of check fraud within 14 days of receiving their statement. This has left many victims of fraud without any recourse for compensation.
“Unfortunately, it’s an all-too-common occurrence,” said Jennifer Pitt, Senior Fraud & Security Analyst at Javelin Strategy & Research. “Many banks use arbitrary deadlines to avoid assisting check fraud victims. While the courts have ruled banks can determine check fraud reporting timeframes, they shouldn’t use the ruling to avoid taking the proper steps.”
The Cycle of Check Fraud
When there is any evidence of fraud, banks should file a suspicious activity report (SAR) with the Financial Crimes Enforcement Network (FinCEN). If financial institutions simply dismiss a check fraud victim without following the proper protocol, the victims lose a significant amount of money, the criminals aren’t held accountable, and the cycle of check fraud continues.
“In every case where a member alleges check fraud, the bank should issue a provisional credit and investigate,” Pitt said. “As check fraud cases continue to mount, Javelin sees a tipping point quickly emerging. Banks are going to have to find a way to work with their customers to resolve check fraud, or they will start to lose customers.”
A Rising Threat
The U.S. has seen a rise in check fraud over the past few years, and most of those compromises were due to mail theft and check washing. The U.S. Postal Service has urged the public to stop mailing checks because of the sheer number of mail thefts, and even blue postal boxes are no longer safe.
“If possible, consumers should stop writing checks,” Pitt said. “They are far too easy to steal, copy, or alter. In addition, consumers should check their accounts on a weekly or monthly basis for unusual or unauthorized transactions, and immediately report them to their financial institution.”
In addition to reporting check fraud to their bank, consumers should notify law enforcement, who can conduct a more thorough investigation and can potentially identify, locate, and charge the suspect. Reporting fraud to the authorities is critical because the criminals involved could be a part of a larger crime ring.
