Check Fraud on Pace for Record Year – Consider Electronic Payments

Thru October, depository institutions (mainly banks) filed 440,000 suspicious activity reports (SARs) related to check fraud according to the Financial Crimes Enforcement Network or FINCEN. Last year, for the same period, that number was 420,000.

This puts us on track for 500,000 reports for the year, which is double the number from 2021.

To help understand the cost of this, Regions Financial, which is a mid-tier bank holding company, reported that it had lost $135 million JUST TO CHECK FRAUD between APRIL and SEPTEMBER. That is over a quarter billion dollars for the year and that is just one bank.

While Regulation E protects consumers from check fraud losses in most cases, it does not protect businesses. Businesses are expected to protect themselves.

Banks do try to detect check fraud but it is much harder since 9/11. During 9/11 when air traffic was down, banks could not clear checks. As a result, Congress passed Check 21, which allowed the first bank to “truncate” the original check and substitute an image for it. As a result, banks can no longer examine check stock, ink, impressions, etc. to detect fraud.

Criminal enterprises steal checks from the mail, “wash” certain fields and then get money mules to deposit those fraudulent checks. The mules get a small fee for this and think the business is legitimate.

While people continue to use checks, as do businesses, check fraud seems to be on an upswing, so maybe that is not a great idea.

Credit: American Banker

Whether you are a business or a consumer, consider using virtual payment cards instead, or use ACH transactions. Companies like Zelle, which is owned by the big banks, is another option. The challenge with ACH and Zelle is **you** are responsible for making sure the money goes to the right person. It is much harder to get your money back and there are very few legal protections in case you are swindled.

With virtual payment cards, usually Mastercard or Visa logoed cards, you have all of the protections of a credit card. With virtual cards you can usually tie the use of the card to a single merchant so even if the number is stolen, it cannot be used elsewhere. You can lock the card, cancel just that virtual card, limit the amount that be charged to it, etc., depending on the service. Credit: American Banker

Another option is to use electronic payment services which are offered by the banks and third parties. With these services, the bank takes the money out of your account and puts it in their account. They have very sophisticated controls over those transactions, including using Positive Pay. Most of the time the bank or service translates your payment to some form of electronic payment, but even if they can’t, your checking account information (routing and account numbers) is protected because the number on the resultant paper check to the payee, if any, belongs to the bank, not you.

Bottom line – there are a number of options to consider instead of paper checks, likely all of which are safer than checks.

If you are interested in this and need help, please contact us.

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