Fake Check Scams
How to Protect Your Financial Institution
and the Consumers You Serve
Consumer
Federation
of America
2010
How Fake Check Scams Work
• Victim is convinced by fraudster to accept a
realistic-looking check or money order and deposit
or cash it
• Fraudster instructs the victim to wire a portion of
the funds somewhere
• Funds can’t be recalled once picked up
• Scam takes advantage of consumer’s ability to
access funds before counterfeit is discovered
• Consumer is liable for loss, but financial institution
may lose the money if consumer unable to repay
• Losses generally range from $3,000 - $4,000
Types of Fake Check Scams
• Work-At-Home
– Victim “hired” to process payments from U.S.
customers for a foreign company
– Receives checks or money orders, sends money
to “employer” minus % as salary/commission
Or
– Victim “hired” to conduct “mystery shopping”
– Receives check or money order, instructed to
make a small purchase or test a money transfer
Types of Fake Check Scams
• Foreign Business Offers
– Scammer claims to be business person or
government official/dignitary of a foreign country
– Offers to make victim partner in lucrative
business deal
– Victim receives check or money order, instructed
to send money to pay legal or other fees
• Bogus Grants
– Scammer claims victim selected to receive grant,
sends check or money order for part
– Victim instructed to send money for processing
or other fees
Types of Fake Check Scams
• Sudden Riches
– Scammer claims that victim has won lottery or
sweepstakes
– Victim receives check or money order as
advance, instructed to send money for “fees” and
“taxes”
• Sweetheart Scams
– Fraudster poses as a romantic interest online
– After rapport is built, scammer asks victim to
cash checks or money orders
Types of Fake Check Scams
• Overpayments
– Scammer claims to want to buy item victim
selling in print, online classifieds or auction
– Victim receives check or money order for more
than selling price
– Victim instructed to send excess funds to
someone for “shipping” or other reasons
• Rental Schemes
– Concept similar to overpayments
– May target hotels and inns for extended stays
Victims of Fake Check Scams
• ANYONE can be victim
• A pitch to lure every type of person
– Person who is unemployed or wants to make
extra money working at home
– Retiree thrilled to win sweepstakes or get grant
– Someone selling a car or offering a sublet online
– Business person attracted to promise of lucrative
deal
– Trusting person willing to help a new “friend”
• Fake check scams are equal opportunity crime!
The Perpetrators
• Most fake check scammers located in foreign
countries
• Often part of large, close-knit immigrant
communities
• Operate in small groups or “cells”
• Use similar techniques, wording in letters and
emails
• Use false IDs to make it harder to identify and
track them
• Take advantage of difficulty pursuing law
enforcement actions across borders
Counterfeits are Easy to Produce
• Increased availability of resources
– Print shops or software programs
– Materials
• Check stock
• MICR Ink
• Versatile counterfeiting options
– Business or personal checks
– Cashier’s Checks or Official Checks
– Money Orders
– Traveler’s Checks or Gift Checks
Counterfeits may be Hard to Detect
• Quality has substantially improved – it is difficult to
detect counterfeits simply by looking at them
• Names of real companies or individuals often used
in order to make them look legitimate
• Valid account number or routing number not
sufficient to verify item
• Telephone number printed on item may be
scammer’s
Verifying Checks and Money Orders
To verify authenticity, call the maker
• Use phone books, directory assistance, or
Internet to find valid phone number
• Speak to someone in accounting department
But be aware of limitations
• Verifying account exists and sufficient funds
not enough if stolen account # used
• Scammers may use authentic checks/money
orders and counterfeit repeatedly
• Maker may be reluctant to provide information
because of privacy concerns
Verification Resources
Certain types of checks and money orders can be
verified by contacting the issuers:
• American Express Travelers and Gift Cheques
• Visa Travelers Cheques
• MoneyGram money orders
• Western Union money orders
• Postal money orders
• U.S. Treasury checks
Item Processing
Consumers Don’t Understand the
Process
How long does it take a check or money order
to clear?
The teller said that the
funds are available –
that means that the
check or money order
has cleared, right?
NO!
It can take 10 days or
longer for it to “clear”–
but under Reg CC, the
funds must be made
available quickly
How Money is Sent to the Scammers
• Scammers instruct victims to cash or deposit
checks, send funds via money transfer services
• Western Union, MoneyGram are largest, have
the most physical locations worldwide
• Money can be sent and received through agent
locations
• Cash required to send funds from agent
locations, debit cards sometimes also accepted
• Credit, debit cards may be used to send funds
by telephone or online
• In most cases, recipients receive funds in cash
To Receive:
To Send:
Sending & Receiving a Money Transfer
Go to agent
location, fill
out send
form
Provide form,
money and ID
to agent
Go to agent,
fill out
receive form
Present form
and ID to
agent
Agent verifies
ID
Agent verifies
ID
Agent enters
send form into
system
Agent locates
transfer from
info on form
Sender
receives
receipt and
copy of form
Payee
receives
money
Impact of Fake Check Scams
• Amount of returned item debited from victim’s
account
• May cause overdraft, payments from account to
bounce, fees
• Account may be frozen or closed
• May result in negative report about victim to
databases for account abuses
• If victim unable to cover loss, financial institution
may try other legal means to collect, but not always
successful
• Some victims charged with check fraud
Red Flags of Fake Check Scams
• Customer or member may be victim if:
– Making larger or more frequent deposits than
usual
– Depositing item from unusual source
– Making large cash withdrawal or more frequent
withdrawals than usual
– Mentions winning a sweepstakes or lottery
– Discusses sending money outside of the U.S.
– Says anything that sounds like fake check scam
scenario
Get Involved
• If you suspect fraud, try to verify by asking:
– Did someone overpay you for something you advertised
for sale or rent online and then ask you to send the
excess funds somewhere?
– Did someone ask you to send money to collect your
winnings in a sweepstakes or lottery?
– Did someone ask you to cash this for them as a favor?
– Did someone hire you to process payments for their
company through your personal account?
– Did someone from a foreign country contact you
unexpectedly and offer to make you a partner in a
business deal?
• Or comment, Wow – this is a large deposit, did you win the
lottery or something?
Other Opportunities to Prevent Fraud
• If person asks:
– Has the check cleared?
– Is this money order good?
• Explain how clearing process works
– Funds may be available but check/money order
may not be good
– Customer’s/member’s liability if returned
• Provide warning at point of potential danger, when
funds deposited or withdrawn
Diffuse Confrontational Situations
• Express concern about possible victimization,
desire to help customer/member avoid loss
• Remind customer/member about responsibility
if check or money order bounces
• Refer to independent sources of information i.e.
www.fakechecks.org, FTC, FBI, Postal Inspector,
state or local consumer protection agency
Help for Fake Check Victims
• If customers/members become victims:
– Designate specific personnel to handle
situations
– Consider whether to require repayment, develop
reasonable repayment plan
– Consider whether to close account or keep
customer/member
– Use ChexSystems coding to identify innocent
victims
Encourage Consumers to Report Scam
Consumers can report fake check scams to:
• National Consumers League’s Fraud Center
• Internet Crime Complaint Center
• Postal Inspection Service
• Federal Trade Commission
• State and local consumer protection agencies
Important to manage victims’ expectations
• May not result in law enforcement action
• May not be possible to recover the money
Suggestions for Managers:
Staff
• Review fake check scams with staff periodically
• Provide training on communicating with
customers/members, dealing with confrontational
situations
• Consider financial reward program for staff who
stop fake check scams
• Encourage personnel to report new trends in fake
checks
• Use internal communications to alert staff to new
scams
Suggestions for Managers:
Customers/Members
• Have posters, handouts at the teller line – when
customers/members need the info the most
• Send newsletters, statement stuffers to educate
customers/members
• Use advertising to highlight fake check scam
prevention
• Use your Web site, electronic communications
with customers/members
• Conduct fraud prevention programs in your
community, partner with others
Suggestions for Managers:
Business Customers
• Warn business customers that their company
names may be used by fraudsters on fake checks
• Recommend services such as positive pay
• Educate businesses about risks of cashing checks
and money orders, how to verify
• Enlist businesses to help educate consumers in
community
• Partner in joint consumer education projects,
programs
Suggestions for Managers:
Internal Policies
• Consider implementing systems that may help
detect suspect items
• Back-end systems can be programmed to alert to
suspect items
• Some FI’s use UV light detectors at the teller line to
detect fake money orders, traveler’s checks
• Internal policy manuals should contain information
about detecting fake checks
Educational Resources
Consumer Federation of America
www.consumerfed.org/other/FakeCheckScams.asp
National Consumers League
www.fakechecks.org
PhoneBusters
www.phonebusters.com/english/index.html
FBI Fraud Alert
http://columbia.fbi.gov/fraudletter.htm
Educational Resources
Fraud Alert: Fake Check Scams
American Bankers Association/NCL brochure
www.bankstuffers.com/brochures.php
Giving the Bounce to Counterfeit Check Scams
Federal Trade Commission
www.ftc.gov/bcp/edu/pubs/consumer/credit/cre40.shtm
Don’t be the Victim of a Fake Check Scam!
Postal Inspection Service
www.usps.com/cpim/ftp/notices/not174.pdf