Should you stop writing checks? Banks wish you would to thwart fraud
A big banking industry group, not surprisingly perhaps, suggests that consumers stop writing paper checks to stamp out the proliferation of check washing scams. Stop writing checks?
It's seriously one of the suggestions now that check fraud has exploded by 385% since the pandemic, according to U.S. Treasury Department data. Banks are forced to spend more to beef up their technology to prevent criminal check fraud, and, even then, plenty of fake checks continue to get cashed.
It's a massive headache for bankers, the U.S. Postal Service, and consumers who become victims of crooks and loopholes in a regulatory system that can work against them.
The stolen check can be washed clean of the original ink with household chemicals. Criminals may replace the "payee" and often the dollar amount to fuel the fraud. And fraudsters can copy and print multiple washed checks for future use or to sell to other criminals.
The $150 check you wrote could end up being written by crooks for several hundred dollars or more. If the fraud isn't spotted, the money ends up with the criminals. But your bill won't get paid. Your signature remains in place so it looks like you wrote the check.
Worse yet, you're going to have to undergo an investigation with the bank to get your money back. Consumers report waiting months or even years to get thousands of dollars back. Some do not get any money back.
We never had to go to such lengths to analyze if we should or shouldn't write a check. But high-profile cases — such as a crackdown on a massive mail fraud ring that targeted high-end neighborhoods in Oakland County to steal checks, credit cards and personal information from mailboxes from late 2018 through at least March 2019 — make it clear that check writing cannot be treated casually.
During tax season, many people will be writing checks to pay their income taxes. Yet, should you really do that? Might be better to pay taxes through an electronic funds withdrawal and have money taken out your bank account.
Consumer protections aren't strong
A Los Angeles consumer had written a $21,000 check to pay his federal taxes in 2021, sent the check by mail, and later discovered that the check was stolen, signed by someone else and deposited into a different account at another bank, not the U.S. Treasury, according to a KCAL-TV news report last April.
But the consumer's bank would not credit his account until the bank that accepted the fake check reimbursed the victim's bank. It took two years for the consumer to get several thousand dollars back.
Checks are largely governed by state law through the Uniform Commercial Code, which gives consumers up to a year to inform their bank of a fraudulent or altered check.
But — and pay attention here — banks can and do shorten the time for notification as part of their account agreements, according to Carla Sanchez-Adams, a senior attorney at the National Consumer Law Center.
Many banks, she said, limit the time to somewhere between 14 days and 30 days. Check your account agreement.
"It's incredibly difficult," Sanchez-Adams said.
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Sometimes, it's hard to spot the fraud. Criminals do not always change the amount on the check. You might see that an $800 check was cashed to cover your rent and not realize that someone else cashed that check.
In testimony before the Senate Banking, Housing and Urban Affairs Committee in February, Sanchez-Adams said one consumer told the National Consumer Law Center that "he had no idea his check had been altered until his landlord — a family friend — eventually told him months later that he had not received the rent."
Many consumers have not received paper copies of their checks for years. And more changes are ahead for many.
Bank of America, for example, told customers that starting May 17, its statements sent in the mail will no longer include images of canceled checks. Such images can be viewed online, and copies are available by request for free.
Sanchez-Adams said she personally doesn't use checks, unless she's able to hand them to someone, given the efforts by criminal activity. She treats a check like cash. "Would you send cash in the mail?" she asks.
How check fraud works today
When it comes to check fraud, criminals often fish out mail from blue U.S. postal boxes, rob carriers at gunpoint, and even try to bribe postal workers to get their hands on master keys that can be sold on the dark web for thousands of dollars and later used to open collection boxes.
Sure, crooks will steal cash or gift cards that people send in the mail, too. But they can steal even more money by getting their hands on paper checks.
Some stolen checks end up being sold online to other crooks. Many times, people can be recruited by criminals to cash the phony checks for them, often using fake IDs, or encouraged to open accounts that can be used to cash altered checks.
Criminals also aim to steal "personal checks, business checks, tax refund checks, and checks related to government assistance programs, such as Social Security payments and unemployment benefits," according to a 2023 alert by the Financial Crimes Enforcement Network.
The alert noted: "Business checks may be more valuable because business accounts are often well-funded and it may take longer for the victim to notice the fraud."
Consumers reported losing $209 million in 2023 to fraud involving checks, which is close to the $210 million reported lost to fraud involving payment apps, according to data from the latest Consumer Sentinel Network Data Book. The network is managed by the Federal Trade Commission but compiles consumer complaints from a variety of sources. Only 8,603 complaints involving check fraud were made to the various agencies. By contrast, 63,305 complaints were made involving payment apps.
But the losses are far deeper than those reports. The Treasury Department announced in February that it had recovered more than $375 million after implementing enhanced fraud detection using artificial intelligence at the beginning of fiscal year 2023.
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Who writes checks anymore?
Many people already are paying their bills online, using direct pay, or using mobile apps, not writing checks. Even so, nearly 13 million checks are still being written each day, according to banking industry data.
"There's no way to stop check fraud without stopping checks at some point," said Paul Benda, executive vice president of risk, fraud and cybersecurity at the American Bankers Association at a banking industry conference in Washington, D.C., on March 20.
He called check fraud "a pain point for the industry."
In March, the American Bankers Association and the U.S. Postal Inspection Service joined forces in an educational campaign to combat the "rapid rise in check fraud."
Pandemic 'turbocharged' financial crimes
But why now? Check fraud isn't new. Street gangs ramped up some white collar crimes, such as check fraud and credit card fraud, more than 25 years ago, thanks to home computers and other technology. So why the dramatic uptick since the pandemic?
"If you look in general, it seems like the pandemic really turbocharged fraud," Benda told me in a phone interview. "We can't necessarily say why."
He pointed to the success that crooks had making fraudulent claims for generous unemployment insurance benefits during the pandemic. The U.S. Government Accountability Office estimated that fraud accounted for anywhere from 11% to 15% of the total amount of unemployment insurance benefits paid nationwide during the pandemic. The dollars lost, according to the GAO report issued in September 2023, were likely "between $100 billion and $135 billion."
"I think there were a lot of first-time fraudsters," Benda said, "that were able to file a claim and didn't get caught."
It seems like, he said, criminal gangs have "industrialized fraud."
Checks, he said, aren't a form of payment that banks really like, Benda said. "Electronic payments are faster and more secure."
How do you protect yourself from check washing scams
Many banks, Benda said, are encouraging customers to stop using checks and move more toward electronic payments. Banks have hired more staff, he said, to review checks on the same day they come in to look for altered checks. Tellers are trained to look for phony checks and fake IDs. But it's a constant battle and costly proposition.
If you're still using checks, you're encouraged to do such things as use a gel pen or pens with indelible black ink so it is more difficult for a criminal to wash your checks. Other tips include:
Don't mail a bill with a check from a mailbox. If possible, instead go inside the post office to drop off a bill. Never leave mail in your own mailbox overnight.
Call to make sure the check was received by a business, charity or family member. Contact the bank immediately if you spot a problem.
Pay attention to who cashes the check. Some scammers don't change the amount on the check but will change the payee.
Don’t write your Social Security number, credit card information, driver’s license number or phone number on checks.
Report stolen mail as soon as possible by submitting an online complaint to the Postal Inspection Service at www.uspis.gov/report or calling 877-876-2455.
Consumers are asked to report crimes or call 911 when they suspect that someone might be trying to rob a mail carrier.
How Postal Service is cracking down on crimes
In May 2023, the U.S. Postal Service and the U.S. Postal Inspection Service launched the Project Safe Delivery campaign to reduce mail theft and better protect postal employees.
The U.S. Postal Inspection Service now is offering rewards of up to $150,000 now, up from $50,000 in the past, for information leading to the identification, arrest, and prosecution of those rob letter carriers.
Individuals who are convicted of mail theft can face up to five years in prison, possession of postal keys up to 10 years in prison and those who rob letter carriers can face up to 25 years in prison, according to the U.S. Postal Inspection Service.
In the Oakland County mail theft and identity theft case, four men were sentenced — Deavon Allen, Cole Patrick Castelow, Malik Frazier and Ronald Reese — by U.S. District Judge Terrence Berg in U.S. District Court for the Eastern District of Michigan in 2023 and 2024. Sentences were: Castelow, 72 months in prison; Frazier, 51 months; Allen, 27 months, and Reese, 18 months. Restitution was ordered, joint and several with the co-defendants in the case, in the total amount of $141,419.21.
Michael Martel, postal inspector and public information officer for the U.S. Postal Inspection Service, said much is being done to frustrate criminals by making it harder for them to gain access to the mail in traditional mailboxes.
So far, the Postal Service has replaced more than 15,000 blue boxes in key areas with a new high-security blue collection box. The outside is similar but the inside has enhanced security features. The post office also has already replaced 28,000 antiquated arrow locks with electronic mechanisms that can better ensure the safety of the mail after a robbery. The key alone, Martel said, won't give someone access to the mail in these cases.
Martel said criminal groups "are increasingly organized. We're seeing multiple robberies committed by the same parties."
More: Fraud and scams cost consumers a record $10 billion in 2023, according to FTC
Martel said the goal of the Postal Service is to make the mail stream safe, not necessarily discouraging consumers from using checks. "We always advise customers to never send cash," he said.
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tompor.
This article originally appeared on Detroit Free Press: A surge in check fraud drives consumers to question writing a check
