FinCEN recently released a report summarizing trends in mail-related check fraud. According to the report, almost 90% of check fraud reports are being filed by banks, with small- and medium-sized banks filing the majority of reports.
Checks stolen from the mail can be used in a variety of ways, with the most popular approach being to alter the check, either by washing it or simply writing on it, and then depositing it. Some methods are less sophisticated, such as depositing the check with a forged endorsement, while others can be much more sophisticated.
Fraudsters may use the information from stolen checks to create counterfeit checks or they may sell the information from the check online. Ā Some will open fraudulent accounts for depositing the checks. These accounts can be opened by stealing the identity of an existing individual or business, or they may be opened in the name of entities that do not actually exist. In what is perhaps the most complicated use of stolen checks, some fraudsters will send washed and altered checks to the victims of their romance or employment scams, convincing the victim to deposit the check and send the funds back to the fraudster before the check is returned.
FinCEN additionally notes that fraudsters tend to prefer to conduct their activities in ways that avoids face-to-face interaction with bank personnel. ATM deposits are therefore a preferred deposit method, although remote deposit capture is even better, because it avoids the risk that bank employees will notice signs of alteration when they process the physical check.
Although the report demonstrates that mail-related check fraud is a large and serious problem, the report provides information about how these crimes are perpetrated and gives insights on areas where banks may want to focus in order to reduce their liability on check fraud related claims.
Customer Identification Procedures. One method of committing check fraud involves identity theft used to open new accounts, often for entities, using the name of the check payee or a name that is nearly identical. The entities or individuals in whose name the account is opened may not even actually exist and the addresses provided are often fraudulent. Banks may want to consider whether they can improve identity verification measures at account opening to lower their risk of check fraud.
Mobile Deposit and Remote Deposit Funds Availability. While banks often are left with liability for fraudulent checks due to Regulation CCās funds availability requirements, banks can set different funds availability policies with respect to mobile and remote deposits in the agreements to provide these services. Identifying indicators of fraud risk may enable the bank to develop policies for these deposit types that allow the bank to reduce the risk of loss for these types of deposits, which are popular with fraudsters.
Online Account Opening. Customers may appreciate that online account opening is fast and convenient, but it looks like fraudsters appreciate that it enables them to avoid detection. Banks may want to consider limiting online account opening to lower risk accounts and customers or, alternatively, consider using additional identity verification tools when reviewing accounts opened online in order to more effectively manage the risk associated with these accounts.
Blank Checks. Itās not just signed checks that are stolen in the mail; fraudsters also steal blank checks. Banks may want to consider whether they can encourage customers to order checks through the bank, so that the bank can confirm delivery of checks with the customer and take early action if blank checks are not received, in addition to potentially directing customers to checks that are more difficult to wash.
Reducing Mailed Checks. Banks may want to encourage customers to reduce the number of checks they place in the mail. Offering or incentivizing lower risk alternatives like bank-supported online bill pay options may help reduce the bankās overall risk, particularly if the customer is informed that the use of these services may reduce the risk of check fraud.
Identifying Washed Checks. Under the UCC, the bank of first deposit (āBOFDā) will often end up responsible for payment when an altered check is discovered. Establishing procedures for identifying potentially washed checks and ensuring that employees are properly trained on spotting counterfeit, washed, and altered checks may reduce the bankās overall liability.