What Happens If You Unknowingly Deposit a Fake Check?

What Happens If You Unknowingly Deposit a Fake Check?

Every day, unsuspecting business owners deposit fake checks only to find out later that they’ve been duped. So, what happens if you unknowingly deposit a fake check? The unfortunate result is that, depending on the situation, you could now be out of pocket and suffer financial losses for your mistake.  

While checks made up 18% of non-cash payments in 2023, scammers will use them to try and take goods for free. Merchants are then left to deal with the losses. In 2023, those losses amounted to $138 million from 32,164 fake check scams reported to the Federal Trade Commission. 

For perspective, the 2023 AFP Payments Fraud and Control Report states that checks were most affected by payment fraud in 2022. In fact, 63% of organizations experienced check fraud during 2022. Small businesses are the most frequent check fraud targets because they typically have minimal prevention resources.

If you unknowingly deposit a counterfeit check, it’s impossible to access those funds. They’re gone. Worse, the bank might hold you personally liable for any losses they incur if the check was fraudulent. Then there is a risk that a criminal investigation may be opened if the check is determined to be counterfeit.

Accepting a bad check has ripple effects that cost much more than the amount lost for the item or service. Education is the best prevention. In this article, we take you through the fake check scam, including how it works, how to spot one, and how to protect yourself from becoming a victim.

What Is a Fake Check Scam? 

A fake check is a check that has been manufactured to appear legitimate, but it’s not backed by sufficient funds. This could be a forged check, a counterfeit check, or a legitimate check in the hands of someone committing identity theft.

In some more sophisticated scams, criminals will go to great lengths to make a counterfeit cashier’s check look as real as possible by using high-quality materials and even incorporating watermarks. In other cases, scammers use checks stolen from legitimate businesses or individuals to launder the money.

The goal is to fool the recipient of the check and the bank employees. The scammer wants enough time to get the goods before the check is discovered to be fake.

To understand how scammers get away with this, let’s break down the steps in the check accepting and submitting process.

Let’s say a scammer gives a fake cashier’s check to a business owner in exchange for merchandise or services. The check looks legitimate, so the business owner accepts it. They go to the bank and deposit it into their bank account as they usually would. 

The teller accepts the check with no reason to suspect it is a fake. The bank or credit union then releases the funds, which the business owner believes is real money. But it’s not.

Unfortunately, when a check deposit is processed, federal law and bank policies dictate that the funds must be made available within one or two business days. It appears as a debit, but it’s really in clearing. 

Often the bank won’t get to verify the check within those two days. They may do this a week later. Once the bank discovers the counterfeit check, they will reverse the full amount and deduct all of that money.

That in-between period is the key to the scam. During this window of opportunity, scammers can collect their goods and disappear with no consequences.

In our hypothetical, the business owner is spending their money believing the amount in their bank to be part of their earnings. After a few days (or even weeks), the check bounces. The bank discovers the counterfeit check and reverses the transaction, deducting all that money from the business owner’s account. The merchant’s bank could end up overdrawn, but the scammer gets away without paying a cent.

So whether it’s a counterfeit check, a forged check, or an identity theft-linked check, the check bounces. Based on the bank’s policies, the merchant could face overdraft fees and other consequences regardless of the type of check.

Focus on Cashier’s Check Scams

Many people may not know the difference between personal checks and cashier’s checks. A personal check is drawn on an individual’s bank account (a checking account). If there are sufficient funds, the check clears.

In contrast, a financial institution guarantees a cashier’s check, deducted from the bank’s dedicated funds. At this issuing bank, a cashier or bank teller signs the check.

How these fake check scams work

Most cashier’s check scams follow the same sequence. First, an individual gives the check fraud payee a legitimate-looking money order or check. The scammer often asks the victim to send certain goods in return for the “payment.” Alternatively, the scammer may request that the victim send a wire transfer.

Next, the payee deposits (or cashes) the money order or check. They ship the goods or wire the money as requested. Several business days later, they learn that the cashier’s check was fake. Now, they have no payment for the shipped goods or have lost the wire transfer funds.

3 types of cashier’s check fraud

Mystery shopper scams involving gift cards, and work-at-home scams, are common cashier’s check fraud schemes. Clever fraudsters have other methods of cashier’s check fraud. Astute observers may be able to identify these “red flag” episodes.

Overpayment for online purchases

Scammers often target online sellers on platforms such as eBay and Craigslist. The scammer offers to purchase an item but sends a cashier’s check considerably above the listing price.

When the seller raises the issue, the scammer asks the seller to cash the check and wire the extra funds. Because this is a fake check, however, the seller will wire their own funds to the scammer.

Property rental check fraud

Here, a landlord is contacted by an individual who wants to rent the property “sight unseen.” The person claims they have a new job, and they are willing to pay the required deposits via a cashier’s check.

The day after the landlord deposits the check, the “tenant” says they aren’t taking the job and won’t need the rental property. They request that the landlord return some of the rental funds. After the landlord does so, they learn that the cashier’s check was a fake check.

Foreign lottery scams

These fake check scams begin with a letter and cashier’s check sent to the check fraud victim. The letter states that the person has won an overseas lottery (or sweepstakes). The cashier’s check covers the “taxes and fees” related to receiving the winnings payment.

The victim is instructed to deposit the check and send a wire transfer (or money transfer) to the sender. After the check deposit, the payee may keep the rest of the funds, which never materialize.

4 Most Common Check Scams

Both consumers and merchants are targeted in scams. As a merchant, you have the likelihood to be targeted to them all. It’s important to know what they are to avoid falling victim.

  • Sudden winnings scams: They are told they have won a prize and receive a check but are instructed to do a money transfer to return part of the money after taxes are paid.
  • Employment scams: A check is received as a “contract” to begin a job, and they are instructed to keep a portion and wire transfer the rest to pay for supplies.
  • Overpayment scams: You sell an item or service, and then the person pays you with a check that is more than what was agreed upon.
  • Mystery shopper scams: The individual is sent a check for purchasing items as part of a mystery shopping assignment and asked to wire transfer money or return a portion of the payment.

Never deposit a check or money order from an unknown party that asks you to send money back to them in cash, gift cards, or a money transfer.

What Happens If You Unknowingly Deposit A Fake Check_Common Check Scams_Infographic

What Happens If You Unknowingly Deposit a Fake Check?

Unfortunately, intelligent people fall for scams all the time. As a result, good people suffer the consequences of the ill intentions of others.

What happens first is that you don’t get your money back. There is no reimbursement process. It’s simply gone.

Worse, the bank might hold you personally liable. If they incurred any losses, they could seek them back from you. At the minimum, it is the amount of the check. At worst, it could include other fees, like overdraft fees and penalties.

Lastly, if the bank believes there to be evidence that you were knowingly involved in receiving counterfeit checks, they could open a criminal investigation. Depending on the results, these investigations can take years to complete and result in serious consequences, such as a misdemeanor.

The charges for intentional check fraud

Individuals who intentionally commit check fraud, and deceive bank employees, are often caught by local police or other law enforcement.

The amount of the check determines the type of charge. Smaller amounts usually result in misdemeanor charges while larger amounts trigger a felony charge. State laws often consider multiple factors in determining the charge. Jail time varies with the type of charge.

How Businesses Are Impacted by Check Fraud 

In business banking and payment processing, infringements can impact your ability to open a new checking account. It could make you a high-risk customer. Being deemed as such can damage your credit score, make it difficult to get loans, and burden you with high-risk rates and fees that other businesses wouldn’t have to pay.

Don’t downplay the potential credit score and credit report impacts. Lenders’ reluctance to approve loans could derail major life decisions such as a home purchase.

What to Do If You’re a Victim of Check Fraud

If you find yourself a victim of check fraud, the first step is to contact your bank. Proactive action will go far in preventing any further losses. It will also highlight to them that you are, in fact, a victim rather than a participant in the scam.

You may also need to contact local law enforcement if you suspect fraud or think you have information about someone engaging in fraudulent activities. It is important to provide as many details and evidence as possible. Think of:

  • Contact information like names, phone numbers, addresses, and the account number associated with the check or transaction
  • Copies of any emails or messages related to the transaction
  • Images of the check and its accompanying documents (if applicable)
  • In-store video surveillance (if you have it) of the person giving you the check.

Once you have reported this to the local police, you should contact consumer protection bodies like the Federal Trade Commission, the US Postal Inspection Service, and your state’s Attorney General. You should also contact the Internet Crime Complaint Center if the scam was online. They will provide further guidance and resources to help you navigate the process.

Finally, you should tighten up your internal procedures to avoid this happening again.

How to Spot Fake Check Scams and Avoid Them

The best way to protect yourself from check scams is by being aware of the warning signs. For scammers targeting merchants, they could be:

  • Strange requests or demands
  • An urgency to complete a transaction as soon as possible
  • Payment for goods that is much higher than what was agreed upon initially
  • Requests to transfer money to other accounts or parties
  • Unsolicited payments from people you don’t know and have never done business with
  • Documents that appear to be doctored or altered in any way.

Here are a few tips for spotting fake checks:

Look for visible, tactile signs that the check is real

Fake personal checks are often printed, while real checks are ripped from a checkbook. If the edges are all smooth, this is a red flag. You should ask for more identification. If the edges are perforated, this points to legitimacy, but that shouldn’t mean trusting it entirely at face value.

Check also what kind of paper the check is made from. If it’s thin and flimsy, this is another red flag. It could be printed. Real checks are thick, sturdy, and matte. Anything that’s not should be treated with caution.

Assess all identifiers

All checks have a check number which can be found in two locations on the check. The first will be in the upper-righthand corner, and the second is in the MICR (magnetic ink character recognition) line. On a legitimate check, these two numbers will be identical. If not, it’s a fake.

Also, assess the number itself. If it’s a low number, it’s from a new account. This could be a red flag and should be written into your procedure as a cause for further scrutiny and verification.

Finally, check the logo. Every check has a bank logo. If not, it’s fake. If there is a logo, check that it and other identifiers, like the watermark, are clear. Copied checks can look faded.

Verify the bank

The first step may be to look it up. Search the bank online but also go to the Federal Deposit Insurance Corporation’s BankFind Suite, where you can look up the routing number on the check. This will tell you quickly if it’s legitimate.

If you do call the bank, never call a phone number that is listed on the check. This could be a number that goes to a scam call center.

One easy tell is the address. If there is no address or the address is a PO box, it’s a guaranteed fake.

With all of your visual checks done, here are the protocols you can implement to avoid letting a sophisticated scam through:

  • Insist on seeing valid identification. Every check should need an identity check. Ask the customer to show you a photo ID or other credentials that match what’s on the check before accepting it. In some cases, checks aren’t “fake.” They’re in the hands of someone committing identity theft.
  • Verify the funds with the issuing bank. Contact the financial institution that issued the check and confirm its validity directly.
  • Be cautious if someone offers to pay more than the asking price. The suggestion of overpayment could be a sign that the scammer isn’t worried about the amount (as they know there is nothing there anyway). Or, they may convince you to accept it and then ask for their change in cash.
  • Never accept checks from foreign countries. It is almost certain to be fraudulent.
  • Train your employees on the signs of check fraud and the necessary procedures for handling checks. If it is a significant problem in your business or your industry, you may introduce a policy whereby only you or trusted managers can accept checks.
  • Use reliable payment processing services that offer fraud protection and guarantee funds availability. Payment processors like Payment Depot meet PCI standards to protect merchants from fraudsters and recover any lost funds.
  • Ask for multiple forms of payment. A legitimate customer would have no problem offering a debit or credit card if it helps you make the sale. Merchants should routinely ask for a different credit card or debit card when a customer’s card is declined.

By being vigilant and taking the necessary steps to protect yourself, you can reduce your risk of becoming a victim of check fraud. With the right tools and procedures in place, you will be better prepared.

The Bottom Line

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Check fraud is a problem that affects many businesses. But by being aware of the signs and implementing the right procedures, you can protect yourself from becoming a victim. Take the necessary steps to verify checks correctly, and take extra caution for any red flags. Ask for multiple forms of payment and use reliable payment processing services to help protect your business.

Your payment processor can be a great resource when it comes to fraud prevention and security. They will have the latest technology and protocols in place to help you protect your business from fraudulent checks. Contact Payment Depot today to learn how we can support you in accepting checks confidently and getting the best rates in payment processing.

FAQs about Fake Checks

Q: What are some common features of legitimate checks?

Legitimate checks (or real checks) feature the clearly printed bank (or credit union) logo. Real checks also display the checking account holder’s address─not a P. O. box. The account holder’s phone number (or other contact information) may also appear here.

Real checks show a check number in the upper right corner. A matching check number appears on the Magnetic Ink Character Recognition bottom line. The routing number and account number also appear on this line. A counterfeit check will not display this information.

Finally, legitimate checks include security features like background watermarks and microprint lines.

Q: Are mailed checks susceptible to check fraud?

Yes, during early 2023 there was a sudden nationwide increase in mail theft-related check fraud. Fraudsters pilfer checks from the U.S. mail system by accessing residential and USPS collection mailboxes. Some criminals use counterfeit (or stolen) USPS master keys. Others jury-rig mailbox fishing gear to obtain envelopes inside the boxes.

Once the fraudsters obtain the checks, they carefully alter the payees’ names and payment amounts. Next, thieves remotely deposit the checks into their controlled bank accounts.

Q: Which three consumer protection entities can provide guidance during a check fraud case?

Check fraud victims should contact the Federal Trade Commission (or FTC). The agency’s official website is FTC.gov. The U.S. Postal Inspection Service is also a useful resource. These two entities operate under federal law. Each state’s attorney general can also provide assistance.

Q: Is a lawyer necessary for resolving a check fraud case?

A check fraud victim could also experience significant financial losses along with identity theft. A lawyer familiar with financial cases could be helpful.

Q: What are effective strategies for preventing business check fraud?

First, the business (including all team members) should follow recommended check acceptance protocols. Second, the business’ printed checks should be locked up with limited access. Finally, timely bank reconciliations increase the odds of catching check fraud perpetrators.

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