Why is check fraud suddenly rampant?
Awareness key to slowing surge
The check is fading away as a consumer payment method – the number of checks collected by the Federal Reserve annually has plummeted 82% over the last 30 years. So why is check fraud suddenly rampant?
Last year, banks issued about 680,000 reports of check fraud, nearly double what they reported in 2021. And one expert predicted total check fraud will hit $24 billion in losses this year, roughly twice what it was just five years ago.
How has check fraud come back into vogue at a time when paying by check is less popular? The answer is opportunity. It’s a low-tech and relatively easy crime to pull off, and there is still a sizeable pool of potential victims.
Individuals and organized criminal operations are swiping checks from residential mailboxes or the iconic blue drop-off boxes. Then, they’re removing the ink and selling the newly blank check or writing in whatever they want. They’re also picking off checks paying government assistance, Social Security, or unemployment benefits.
But if opportunity is fueling the rise of check fraud, awareness can help slow it.
Check use is way down, but there are still billions circulating
Three decades ago, in 1993, the Federal Reserve collected just over 19 billion checks. (The Atlanta Fed notes the Fed processes about one-third of all checks written, collected, and paid as checks.) By last year, the number of checks collected by the Fed was down to about 3.4 billion after falling every year since 2000.
But the ever-dwindling pool of checks in circulation was obviously still well into the billions in 2022, and the chain of mail custody has proven a soft target for exploitation.
Criminals steal the master keys that open residential mailbox clusters. They pull checks out of collection boxes using homemade tools, including strings tied to bottles drenched in glue. They also case neighborhoods and steal the mail intended for pickup.
Once they have the checks, they can “wash” them by removing the ink. All it takes is chemicals as common as the solvents in nail polish remover.
“You can watch the ink literally float up off the check, and it gives you a brand new piece of paper that you can do whatever you want to with,” a convicted identity thief turned security consultant told checkbook.org.
So, for instance, a fraud victim might send out a check for $272 and discover it’s been cashed for nearly $5,000.
The criminals also take advantage of “float,” the days between when a check is accepted at a bank or business and when funds are withdrawn from the checking account. By the time the fraudulent check is detected by the account holder, the thieves are often long gone.
How can you prevent check fraud?
Victims of check fraud can seek reimbursement by filing claims with their banks, but the process can be delayed, and that can put huge stress on a household’s finances, not to mention the people in it.
So, what can be done?
The post office has taken various steps to make check theft more difficult, including hardening mailboxes so it’s nearly impossible for thieves to pull out mail. Banks have adopted numerous mitigation measures, such as training tellers to flag possible fraud when they see check amounts coming in that are higher-than-normal for particular accounts. Individual consumers can also take steps, including:
- Deposit mail containing checks in boxes close to collection times or only inside post office locations
- Use pens with permanent ink that can’t be removed through washing techniques
- Monitor and balance checking accounts regularly to quickly spot anomalies
- Consider using “Informed Delivery,” a free U.S. Postal Service option that sends you a picture of your mail before delivery, so you can determine if anything is missing after it arrives
- Whenever possible, switch to secure electronic payment methods
We at the Fed know that checks are not going anywhere, even if there are a couple billion fewer of them around these days. But as with any payment method, checks have very real vulnerabilities that plenty of people are trying right now to exploit. Understanding what they are can go a long way toward stopping fraudsters from stealing from you.
Mike Timoney is a vice president of secure payments based at the Federal Reserve Bank of Boston.