Check Fraud Is on the Rise—Again

 

Sluggish sales are not the only problem during the current recession. Crime has been steadily rising, and according to the FBI nationwide crime report, the tally is up to $30 billion and rising. Of that, $30 billion are losses to businesses; almost one-third or $10 billion is the result of check fraud.

Retailers eager for sales are the hardest hit because of the loss of the bad check, combined with the loss of inventory because of the crime. However, retailers are not the only victims of check fraud. Everyone, from large multibillion-dollar corporations to small businesses and even private citizens, is becoming a secondary victim in the latest waves of check fraud.

Organized gangs—using forged checks to purchase such items as baby formula, jeans, and household necessities, as well as big-ticket items from LCD televisions to digital cameras to sell at local pawnshops, on the street, and over the Web on sites such as eBay or Craigslist—are nothing new to the retail industry.

One method used by check fraud criminals involves creating false identification or stealing someone’s identity, purchasing blank check stock from the local office supply store, using word processing software available on nearly any personal computer, and then printing convincing checks.

One of the tools retailers and banks have is known as the “Check Clearing for the 21st Century Act” or “Check 21” which went into effect on October 28, 2004. This piece of legislation reduces the time it takes for a check to clear the bank by allowing banks and retailers to exchange copies of a check digitally rather than having to exchange the check physically. This allows a bank to clear a check within 24 hours rather than the 3 to 5 days with the old method. This means banks and retailers will discover bad checks faster, reducing the possibility of becoming a repeat victim by the same criminal.

But Check 21 is not the only tool in the retailers’ arsenal. Many retailers are using Check Truncation, which converts a check from a physical piece of paper to an electronic transaction known as ACH. It works much like a debit card transaction but without the PIN number that you would have to enter for a debit card transaction.

Check Truncation works by scanning the numbers at the bottom of your check known as the MICR line (pronounced my-ker). These numbers provide all the information the retailer needs to debit your account electronically. This line contains the ABA number identifying the bank on which the check is drawn, as well as the checking account from which the funds will be withdrawn.

These two systems have had a significant impact on check fraud criminals by detecting invalid accounts, or accounts used for check fraud previously. The problem is that the banks have used these tools to give their customers a false sense of security, telling customers that these laws and procedures have been implemented to protect the customers, when in reality, these systems are designed to protect the banks.

Granted, these methods have slowed check fraud for a while, but as most criminals, it does not take them long to figure out a way around the problem or, in this case, how to use the system to their advantage, and that is exactly what today’s criminals have done.

Check Truncation has helped check fraud prosper more then ever before. It is like trying to put out a fire by throwing a bucket of gasoline on the flames. It just does not help.

If you have ever been to a retailer and made a purchase with a check, and the clerk scanned your check and handed it back to you with your receipt, then you have experienced Check Truncation.

Check fraud criminals love this aspect. By creating checks on their computers, they can place the bank ABA and account information on the MICR line that belongs to any secondary victim for whom they happen to have obtained information, such as the MICR numbers at the bottom of the check. After all, how is the salesclerk supposed to determine whether the numbers on the MICR line of a check belong to the customer? They cannot; that is the bank’s job.

So, now we have a criminal purchasing a quantity of products, and he makes out a check that he manufactured on his computer and hands that check along with his bogus identification to the salesclerk. The clerk then completes the transaction by scanning the MIRC line of the check and performs check truncation, converting the check to an automatic debit to the account encoded on the bottom of the check. Once the transaction is complete, the clerk bags the merchandise and hands it to the criminal along with the receipt and the original check. Yes, the clerk has actually handed the criminal the evidence that could have been used to convict him.

So, what is wrong with this transaction other than the criminal used bogus identification and a bad check? The truth be known—the check is perfectly valid. The information contained on the MICR line had to be valid in order for the transaction to be completed.

The problem is the information this criminal used on the MICR line may have been the exact same information that is on your checks. Yes! He may have obtained your account information and that Check Truncation transaction will be deducted from your checking account. The problem is the amount of the check was small enough that you may not notice it on your bank statement that you will receive in 30 days. Unless you balance your checking account, identify the transaction as fraudulent, and notify your bank within a reasonably short period—you will have footed the bill for that criminal.

This is only one method check fraud criminals are using to obtain funds. These check fraud criminals use other methods, some even more lucrative. Most people think they are protected by their bank; unfortunately, that is no longer the case. Because of the increase in check fraud as well as credit card fraud, banks have been pushing lawmakers to pass laws such as Check 21, as well as other laws that allow them to defer some, if not all, of the responsibility onto their customers. For example, in many cases, banks are not responsible for the first fifty dollars of a fraudulent transaction. If you notify your bank about a fraudulent transaction of say, $150.00, the bank may reimburse you $100.00, of which the first $50.00 is your loss. But what if the fraudulent transaction is only $45.00? It is a good bet that you will be responsible for that loss.

One of the most common defenses banks use to defer losses because of check fraud is that it is their customers’ responsibility to protect themselves from such crime, and ignorance of those laws is no excuse.

In my book, The Truth about Check Fraud, you will learn the truth about how checks work, and what you need to know to protect yourself from not only the criminals, but also from the banks. The banks do not want you to know many things about how checks work and how you can reduce your risk if you only knew how checks worked.

In addition, you will learn the many different methods criminals can use to access your money and how the banks will make sure you are left to assume the loss.

As this recession gets worse, crime will only increase. Do yourself a favor, and pick up a copy of The Truth about Check Fraud today. Just one fraudulent transaction could cost you 10 times the cost of the book.

You can find The Truth about Check Fraud at www.amazon.com.