A Check Fraud Discussion

by Miles Pringle, EVP & General Counsel

You may have seen news in early September that social media videos (largely on TikTok) were showing people exploiting a “glitch” in Chase Bank’s ATM system. The error allowed customers of Chase Bank to write a check for more money than they had available, deposit the check via ATM, and then withdraw the funds in cash. Not long thereafter, Fidelity Investments reduced mobile deposit limits for certain customers, citing a similar scheme. These are examples of new forms of check kiting.  

There have been other concerns regarding check fraud as well. Earlier this year the American Bankers Association and the U.S. Postal Inspection Service announced a joint effort “to combat the rapid rise in check fraud, which has increased nationwide by 385% since the pandemic, according to the U.S. Treasury Department. Check fraud schemes commonly target the U.S. mail to steal checks, alter or wash them to change the payee and dollar amount, and ultimately steal money from victims’ accounts.” It appears that criminals are replicating keys to mailboxes (such as the blue drop-off boxes) or even creating fake ones in highly trafficked areas. 

Checks are a significant form of fraud for a few reasons. One, checks have a slower settlement schedule allowing bad actors to exploit the time lag. Another reason is that they are physical instruments until scanned, so they can be stolen and altered fairly easily. While every payment method can be involved in a fraud, according to NACHA: “Checks continued to be the most problematic payment method.”

The reports regarding the demise of checks have been greatly exaggerated, and checks will be an important form of payment for the foreseeable future. While the number of checks written has been declining since 2000, the value of money transmitted via checks has stayed relatively flat since 2012. Thus, as noted by the Federal Reserve in its most recent Payments Study, the average value of every check written is actually increasing (for example from $1,908 in 2018 to $2,430 in 2021). 

So, what can banks do? Unfortunately, there is no silver bullet. Instead, banks should take a layered approach. Banks can invest in technology solutions and implement programs for riskier customers like Positive Pay. Knowing your customers, and putting transaction limits around riskier customers, is an important tool as well. Perhaps the best tool is customer education. Banks can make sure their customers know of common fraud schemes in order to avoid them in the first place!