Check Fraud: Why It’s a Big Deal and How to Protect Yourself

Lyndon Seitz
Writer
Dolores Bernal
Editor
February 20, 2024
Businessman hand giving signed bank check to other female person business composition realistic ve

Image by macrovector

You might hear jokes that no one’s written a check since 2010, but that’s a bit of an exaggeration. Paper checks are still important to our financial system, and banks process many checks daily. 

Though using paper checks is a well-established system, with many security measures in place, often those measures aren’t enough. Check fraud is a longstanding crime and continues into the 21st century. It affects everyone who uses checks, and it’s becoming more common.

Yet what does check fraud look like today? What do you need to look out for? We’re here with the information you need to protect yourself in these changing times.

What is Check Fraud?

Check fraud is any act that seeks to unlawfully use a check to acquire money, whether digital or paper checks (though we’ll focus primarily on paper checks in this article).

This can include any way of forging or altering a check, counterfeiting checks, and various forms of theft using checks.

This can be a broad definition, and it fits a lot of scams, types of fraud, and ways to harm people. Yet there are many ways checks and the checking system can be misused.

You don’t need to think of every variation yourself. That’s a job for professionals who get paid to think of and research these things. The key takeaways are the illegal usage of the checking system and the fact that it can take many forms.

Check Fraud On The Rise

Perhaps inspired by all the stimulus checks running about, criminals and organized crime syndicates are now performing more check fraud, and more people and businesses are finding themselves businesses.

Specifically, experts and organizations warn Americans not to mail checks if possible, instead using electronic checks or other electronic checks to transfer money.

How bad is the rise? In 2021, there were 350,000 reports of check fraud. In 2022, that number rose to 680,000 cases. A nearly 100 percent increase is no coincidence.

Related to this, mail theft cases doubled to 300,000 cases last year. 

This contrasts with a lower rate of paper check usage, so it isn’t simply a matter of more checks in the system. However, with the average paper check value rising, criminals are more motivated to commit check fraud – or try their best.

Organized Crime and the Counterfeit Check Supply Chain

What’s causing this surge in check fraud? Well, check fraud is becoming a larger operation.

Organized crime can be much more effective at checking fraud. Consider:

  • Organizations can train people who cash checks on how to appear more legitimate.
  • Criminal organizations can set up fake organizations and accounts and create fake IDs for people. 
  • Organizations will have better resources to infiltrate the postal service.
  • In some cases, gangs can steal the keys to the blue mail deposit boxes from postal workers through the threat of violence.
  • Organizations can have specialized roles in the process of check fraud. One person might specialize in sifting through mail deposit boxes. Another might specialize in washing checks. Another might specialize in cashing them successfully and walking away with the money.

More on some of these details later, but check fraud is rarely a one-person operation.

About Fake Checks

If a criminal cannot get a real check, why not make a fake one or alter one to their needs? 

Counterfeiting cash is quite an ordeal nowadays, given the specialized instrumentation and the processes to protect the currency. However, checks have some security features, but only a few. Therefore, criminals might find it easier to fake a check and work from there.

How do criminals obtain and use fake checks? They are likely to use one of the following methods.

1. Altered Checks (Check Washing)

An already-written check is usually stolen (likely from the mail) and then altered somehow.

Unfortunately, making an altered check is easier than you might think. It is easier to alter a check and make it look legitimate than create one from scratch. 

Typically, the criminal will erase the existing ink from a check where convenient using a chemical. Nail polish is commonly used, though other more effective methods are an option.

Following this, new details will be added. It may be a signature, the amount the check is for, who it is to, or anything else.

There are protections against this; any obviously altered check will not get far. However, criminals can have a lot of practice in this and are careful. They can make a check look like the real thing through washing.

2. Counterfeit Checks

You may wonder whether criminals forge checks from scratch, printing them themselves. While they can try, it often isn’t as effective, given the numbers and accounts involved (checks have an account number, routing number, and check number). These are hard to fake reliably.

It’s easier to let the banks do the work and then steal the checks from those who use them.

3. Digital Check Fraud

It is entirely possible to alter an image of a check. It is, after all, just a bunch of pixels. Modify the pixels well enough, and you have a certifiable check from another person.

Before, this wasn’t all that possible, but now there is mobile checking. While convenient, this can lead to false images being used in check fraud. There is a reason there is a limit to mobile checking.

How Check Fraud Can Affect You?

Check fraud can lead to horrible outcomes and is not a victimless crime. Some things that can happen are:

  1. You can lose money from your accounts as it gets stolen.
  2. Your other bills and payments might not go through.
  3. While there is a strong likelihood you’ll be able to get the money back and your accounts in order if you report the crime promptly, you will still be without the money for a while. For many families just getting by, this can be a disaster.
  4. On a greater level, check fraud, as it exists today, undermines trust in our financial and government institutions. This can lead to more inconvenience from needed security features, more concern when doing something simple like sending a check in the mail, and more uncertainty that payments will go through.
  5. Identity theft is more likely with the information obtained from checks and other documents collected with stolen checks.

Check Fraud Variants

Close up hands holding cash and check

Image by Freepik

Not all check fraud is the same, and there are many schemes and problems to be aware of. We can’t go over every possibility, but here are the most common variations.

1. Paperhanging and Check Kiting

Paperhanging is the practice of an account holder purposely writing a bad check. The account might have been opened only to write bad checks, or the account holder intends to leave the country soon and not come back.

Check kiting is when someone owns two accounts writes a check from one to the other, and then deposits it. However, the check is no good, and the account holder will withdraw the money from the second bank before the bank realizes the check is no good.

In both cases, scammers will take advantage of the time window that it takes a check to clear and how quickly an account can be opened. This is made all the easier because everything can be done online.

Defense: In some cases, you don’t need to defend yourself against these types of schemes (the bank does), but if you are receiving a check, make sure that the sender is trustworthy. Otherwise, insist on another form of payment.

2. Hiring Scams

Check fraud and hiring scams going together is surprisingly common. 

With this type of scam, you’ll need to either send in a check to confirm employment or pay a fee to apply, payable by check (for some reason).

However, the job ad is a scam, and it’s all meant to get you to send the scammer a check, either for them to wash it or to cash it and walk away with your money. No job will ever come of this.

Defense: If you have to pay to apply for or get a job, that job offer is a scam.

✎  Related: Work-From-Home Job Scams You Should Know About  ➔

3. “Overpayments”

One common type of check fraud or general scam is sending a check to someone selling an object or service online and then saying they overpaid. They ask you to deposit the check and then send the difference back via wire transfer. However, the check is no good, and the “buyer” runs away with your money.

Defense: There are safer methods of payment found online. Don’t accept checks for personal transactions.

4. Lottery and Prize Check Scams

You’ve won a prize! Don’t worry that you haven’t heard of the prize before or never entered anything of the sort, you’ve won, and you’ve got a lot of money coming your way!

All you need to do is send a small check to pay for the processing of your prize.

This check will either be cashed or mined for your signature and information (or both).

Defense: If something sounds too good to be true, it is. You should never have to pay to receive a prize. Don’t bother with anything you know you didn’t enter.

5. Prepayment and Deposit Scams

When asking for payment, a service provider or seller might ask specifically for a check ahead of time, perhaps as a deposit. Then they don’t provide the goods or the service.

It’s mostly just regular old fraud rather than an advanced system of checking system manipulation.

Defense: Try to only work with recognized businesses and service providers, and be careful about paying up front with a check. You can get a chargeback with credit or a service like PayPal. A check is more difficult (but not impossible) to get your money back.

Preventing Check Fraud

Are there any tools or services you should consider to protect yourself? Are there any behaviors or practices you should know about?

Here are the best ways to prevent check fraud from happening to you or affecting your accounts.

1. Using Electronic Payments

On your end, electronic payments are typically safer than paper checks.

This is not to say that electronic payments don’t have their vulnerabilities or potential issues- only that check fraud and electronic payments are rarely seen together save for defrauding banking apps, which doesn’t affect you personally so much.

You can pay most bills electronically these days. Enjoy convenience and safety.

2. Be Careful About Mailboxes

I mentioned it before, but the blue mail deposit boxes you see every few blocks aren’t safe. Criminals can and will steal the keys to those boxes or obtain copies somehow, and then they will steal the mail, including checks to be altered later.

If you have an important (or any check) to send and you need to send it physically, try to send it directly at the post office, either with the clerk or the slot they have there. It is much more secure (if not perfect).

3. Get Notifications

With your bank, credit card, and other financial accounts, if there is a way to get more information on your transactions or alerts for suspicious activity, take the opportunity.

There are also services such as Aura that will help watch your accounts and identity for you, warning you if something seems suspicious.

4. Avoid Gift Cards

If someone contacts you or you receive a letter asking for payment, prepayment, or compensation (perhaps in an overpayment check scam) in gift cards, just block the person and move on with your life, no matter what they say.  

Gift cards are not currency they are gifts and should only be used as such.

✎  Related: What To Do If You Have Been Gift Card Scammed?  ➔

What to Do If You’re a Victim?

People with a cheque and a pen

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Unfortunately, becoming a victim of check fraud in one form or another is more common than it should be.

If you’re reading this, it might be because you’re a victim and wondering what to do next. Follow these steps:

1. Understand the Nature of the Fraud

There are many types of check fraud, and the solution isn’t one-size-fits-all, even if there are some common steps and practices. Try to understand what happened, if you got scammed, if and how a check got stolen, and record the information.

2. Report the Incident

If you don’t report the incident, it will be like it never happened, and you don’t want that. While it can seem embarrassing or like you’re opening a can of worms, you need to go through the step of reporting before things get better.

  • You will want to report any scams or fraud to the FTC.
  • Report the fraud to your bank and ask about any next steps. This can mean talking with them to get a transaction reversed, if possible (unfortunately, this is not guaranteed).
  • If you catch the fraud before any damage is done, call to freeze your account or cancel checks.
  • Depending on the nature of the fraud, you may want to contact your local police about the issue. You can go to the station or use their non-emergency line for this.
  • The USPS is very interested in learning about stolen or missing mail.

3. Understand Your Security Vulnerabilities

Try to understand how the check fraud happened in the first place so you can prepare for the future. There is a strong chance there is nothing you could have done. After all, you can’t spend all day guarding mailboxes (and there are better uses of your time).

In most cases, the check fraud will be in no way your fault, but you need to make sure it doesn’t happen again. Try not to repeat mistakes or use the same vulnerable systems.

Check Fraud and Identity Theft

Depending on the information you have on your checks, what gets stolen, and other things available online, identity theft is a side effect (or the main intention) of check fraud, and it can be even worse than the original instance of check fraud if it goes too far. 

To help protect yourself from identity theft, one of the best things you can do is sign up for a service such as Aura, which specializes in preventing and monitoring it. 

✎  Related: How To Protect Your Bank Account From Identity Theft?  ➔

Conclusion – Make Sure Your Check Serves You Right

Check fraud is a growing problem in the United States (and beyond), but it doesn’t necessarily have to affect you. Take action as soon as you can to rest easier with your accounts.

Remember that you have recourse should you get targeted or fall for a scam. Take action when you need to, and take proactive action to protect your assets, accounts, and identity now. This means signing up for a service such as Aura, using safe electronic payment methods, and learning the signs of potential scams.

✎  Related: What Can Scammers Do with Your Bank Account Number?