Financial Institutions Face Surge in Check Fraud

Banks, credit unions and brokerages are reportedly racing to keep up with a surge in check fraud as tips for committing the crime are being shared on social media platforms.

These scams take advantage of requirements that banks make customer money available before they fully verify checks, the Wall Street Journal (WSJ) reported Tuesday (Nov. 19).

Fraudsters steal checks from mailboxes, wash them with household chemicals, write in a new recipient and amount, deposit the checks, generally at ATMs, and quickly withdraw cash in portions as the funds become available and before the checks are flagged as suspicious, according to the report.

Checks that are genuine but altered are more likely to go unchallenged during the time that banks are allowed to inspect checks before releasing funds, the report said.

Mobile deposit capabilities that allow customers to immediately access deposited funds and transfer money have made it easier for scanners to access money, per the report.

The Financial Crimes Enforcement Network (FinCEN) said in a September press release that mail-theft related check fraud amounted to more than $688 million between February 2023 and August 2023.

During that period, FinCEN received reports of that type of fraud in 15,417 Bank Secrecy Act (BSA) reports from 841 financial institutions.

The agency found that after checks were stolen from the mail, 44% were altered and then deposited, 26% were used as templates to create counterfeit checks, and 20% were fraudulently signed and deposited.

It was reported in September that J.P. Morgan Chase planned to share with police the information it had about fraud participants who took advantage of a so-called “glitch” that was promoted by TikTok users.

Chase Bank suffered a technical error that allowed customers to immediately withdraw the full amount from checks they deposited at ATMs, and thousands of people exploited the error by depositing bad checks and withdrawing the money from ATMs.

It was also reported in September that Fidelity Investments shut down a similar online check fraud scheme by tightening some restrictions on cash management accounts.

The firm cut the amount certain customers could deposit into their cash management accounts from $100,000 to $1,000 and placed a 16-business-day hold on some account holders’ deposits before that money could be withdrawn or invested.