Main Street Investigates: The Many Faces of Check Fraud

Ernest Hemingway once said, “The best way to find out if you can trust somebody is to trust them.” Sadly, while our trust attracts account holders, it also opens the door to fraudsters.

Check kiting exploits “float time” – the gap between when a check is deposited and when those funds clear. A fraudster deposits a check from one account to another without having the funds. Thanks to electronic transfer, they’re able to withdraw those funds from the second account before you realize the error.

Because it’s a form of behavioral fraud, there may not be visible signs of kiting on the check itself. That said, be on the lookout for:

A check’s power is the paper it’s printed on. Modern printing techniques allow vendors to include numerous safety features that are invisible to the naked eye and not easily duplicated. But naturally, fraudsters have a workaround.

Check washing involves stealing legitimate checks (usually from the mail) and using chemicals to remove ink. Once removed, they can alter the payee and amount information. It may be low tech, but it’s surprisingly effective.

In many cases, account holders will notice the unusual transaction and alert their institution. That doesn’t mean we can’t spot check washing before the damage is done. Keep an eye out for:

Americans write billions of checks each year. At that volume, current methods of check fraud detection struggle to keep up, so bad checks slip past. And even if we catch them after the fact, the funds may be long gone.

Fraudsters make the most of modern imaging software and high-definition printers to cook up convincing fakes. These fakes can’t duplicate modern security features, but they don’t have to be perfect. They just have to pass the first inspection so that funds transfer before the error is found.

In many cases, fraudsters may use mobile deposit features to bypass software or human inspection, making check counterfeiting even more effective.

New technology is a double-edged sword. While it makes fraud easier to catch, it also gives fraudsters new methods to fool us.

Machine learning advances on a near daily basis, using the sum total of our digital output to create new images, language, and concepts. Generative AI systems can be used by almost anyone to create convincing fakes. Combined with mobile deposit, this trend should worry us all.

These days, information is more powerful than ever. Fraudsters can purchase stolen information from the dark web and combine it with fake details to create new identities (sometimes with the help of AI).

Armed with fake personas, these fraudsters open accounts that appear legitimate. After that, the sky’s the limit. Check kiting is only the beginning.

Account holders and institutions must fight back against every fraudulent check. Resources exist for both compensation and justice.

Account holders should report fraudulent transactions to their institutions immediately. Banks and credit unions can escalate the matter by contacting the Federal Trade Commission.

When mail fraud is suspected, it’s a good idea to contact the United States Postal Inspection Service here.

Yes, in many cases, check fraud is a felony, though it depends on local laws and the amount of money stolen. Mail fraud, meanwhile, is always a felony. Depending on the crime and its location, offenders may face anywhere from one to 30 years in prison, plus hundreds of thousands of dollars in fines.

Unfortunately, there’s no one way to stop fraudsters in their tracks. It will take a combination of human diligence, emerging technology, and industry-wide changes.

High security checks are having a real impact, especially when used by businesses large and small. Meanwhile, AI check fraud detection software is empowering financial institutions to examine more checks at scale and in finer detail.

Finally, financial institutions are sharing information about check fraud trends so that they can grow stronger together. Continuing education and stronger internal processes can close vulnerabilities one by one.

At Main Street, checks are our business, but keeping you and your account holders safe is our true purpose. From high security checks to newer innovations designed to protect you, we’re here to help.