How To Recognize and Avoid Check Fraud: A Comprehensive Guide

Technology has made it easier for fraudsters to steal from financial institutions and their clients. However, a type of scam that requires minimal technology and resources is check fraud, which takes advantage of the United States’ reliance on paper checks. Although they’re less common now, checks aren’t going away anytime soon, leaving the door open for financial criminals looking for easy cash. 

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) received 15,417 Bank Secrecy Act reports on check fraud from 841 financial institutions, amounting to more than $688 million in reported suspicious activity over a six month period. And this was only focused on mail theft-related crime, meaning there was an even higher impact than reported. 

Are you curious how you can better protect yourself from check fraud? We’ll provide details that can help you identify and stop this type of scam before it causes you economic harm — or snowballs into a bigger problem. 

Breaking Down Modern Check Fraud

Modern check fraud refers to criminals' sophisticated techniques to exploit checks for financial gain. Unlike traditional methods, which often involve forging signatures or physically altering a paper check, modern check fraud leverages technology to manipulate digital check images, intercept data, and commit fraud on a larger scale.

While this might seem like a controlled issue that doesn’t impact that many Americans, checks are still the second most common form of payment over $500, accounting for over 43% of payments to contractors, 35% of gifts to charity, and 27% of payments to government entities. Yes, the volume of checks written each year has fallen from 50 billion in 1995, but it was still at 11.2 billion in 2021 and about the same today. 

Fraudsters use messaging apps to trade tips on committing check fraud. According to the Wall Street Journal, they frequent Telegram, a popular messaging app, Facebook, and TikTok, naming banks they’ve recently stolen from and exploiting the requirement for financial institutions to make client’s money available before fully verifying checks. 

The problem is that checks are still the easiest way for people and businesses to transfer large sums of money with no added fee. This means that rather than get rid of this payment form, we must be aware of check fraud to stay protected. 

Here’s a breakdown of how check fraud works:

• Data interception: Fraudsters intercept checks via postal theft or phishing emails, obtaining sensitive details like account numbers and routing information. This information allows them to replicate or manipulate checks for unauthorized transactions.
• Check alteration: Using advanced tools, they erase or modify information on physical or digital checks, such as the payee's name and dollar amount. This enables them to redirect payments to fraudulent accounts or inflate check amounts for greater financial gain.
• Counterfeit checks: Criminals create entirely fake checks using the intercepted data, making them appear legitimate. This allows them to pay or deposit money unauthorized from someone else’s account, or from an account that doesn’t exist. These checks often bypass initial security screenings, making them harder to detect.
• Cashing or depositing: Fraudulent checks are deposited through online banking apps or in-person visits before fraud is detected. Perpetrators often withdraw funds quickly or transfer them to other accounts to avoid traceability.

Old vs. New Methods

Unfortunately, there are countless ways checks can be used for fraudulent purposes. And with the introduction of new technology, there are more opportunities than ever:

Old: Manual forgery, physically altering check details, or stealing paper checks from mailboxes.

Traditional methods use minimal technology but are still very effective. Fraudsters will often use chemicals to erase ink on a check and rewrite the payee or amount information — known as check washing. Manual forgery includes signing a stolen check with the correct name, making it seem like a legitimate check. 

While stealing paper checks is a long-used method, it still reigns supreme for scammers. FinCEN identified three primary outcomes after checks were stolen from the U.S. mail: 44% were altered and deposited, 26% were used as templates to create counterfeit checks, and 20% were fraudulently signed and deposited. 

New: Digital manipulation, phishing scams, and account takeover. 

Newer methods use technology to either alter or steal information on checks. Digital manipulation, or check cooking, involves using readily available photo editing software and high-tech printers to manufacture a counterfeit check based on an image. Additionally, phishing check scams involve fake checks or emails that appear to be from a legitimate business, asking you to send them money or stating that you owe them funds. 

Fraudsters can also gain access to your bank account by stealing your login credentials and then using that access to make unauthorized checks from the victim’s account. 

Red Flags and Warning Signs

Recognizing the warning signs of suspicious activity early can help prevent significant financial loss. Here are common red flags to watch for so you can prevent check fraud:

Unfamiliar Transactions

Keep a watchful eye on your bank statements and digital transaction history. If you notice any odd transactions or purchases that you didn’t make — even those that might seem small — it could be check fraud. 

Altered Check Details

Examine each and every check you receive and use for signs of alteration, such as changes to the payee’s name or the dollar amount. Additionally, if any of the handwriting seems inconsistent with the rest, it could be a fraudulent check. 

Pressure Tactics

You should never feel pressured to write or cash a check. Beware of anyone pressuring you to do either of these actions or urging you to send money back immediately. Criminals will often use this scare tactic to make people more likely to follow bad check instructions.

Check Washing or Forgery Signs

Notice any of your checks have odd marks or seem tampered with? Don’t ignore it. It could be a sign of a fake check scheme or altered checks. Also, if you see irregularities in the signature or handwriting that don’t match your own or the person you received the check from, these can indicate a forged check. 

Counterfeit or Fake Checks

If you receive checkbooks or individual checks that you didn’t order, especially those from an unknown source, it could be a warning sign of fraudulent activity. Make sure you don’t use any of these counterfeit checks to ensure no one gets your sensitive information or accesses your money.

Overpayment Scams

This specific type of scam happens when a fraudster sends a victim a check for more than the intended amount and then asks for a refund. However, since they send a bad check, the victim loses any money they send back to the scammer. This and other types of related schemes pull on people’s heartstrings, taking advantage of their kindness and goodwill. 

Misspellings or Errors

While it’s not always a sign of fraud, any details that are misspelled or incorrect could be a sign of check fraud. Fraudsters may make small alterations to names, addresses, or amounts, hoping the recipient won’t notice. Additionally, poorly printed checks with inconsistent fonts, blurry logos, or missing security features can indicate a counterfeit. Even minor errors, such as an incorrect bank name or routing number, should raise suspicion. Always double-check all details on a check before depositing it, and if anything looks off, contact the issuing bank for verification.

Unauthorized Access to Banking Tools

Scammers may gain unauthorized access to a victim’s online banking account, mobile banking app, or check-writing tools. They might use stolen login credentials, phishing techniques, or malware to manipulate account information, issue fraudulent checks, or withdraw funds. You should regularly monitor your banking activity and enable security features like two-factor authentication to prevent unauthorized transactions.

Protect Your Assets With Cathay Bank

Protecting from check fraud can keep your finances and personal information safe from unauthorized access. But being vigilant isn’t enough. If you suspect check fraud, you should follow these action steps:

• Contact your bank immediately: Report the issue to initiate a fraud investigation.
• Place holds or stop payments: Prevent further damage by halting suspicious transactions.
• File a police report: Provide evidence of the fraudulent activity.
• Monitor accounts closely: Look for additional unauthorized transactions.
• Use check security features through your bank: Opt for checks with enhanced fraud prevention, such as watermarks or heat-sensitive ink. 

Through Cathay Bank, you can use tools and resources to stay informed and protect your financial assets. Check out the latest fraud alerts to better understand what threats you might face, and reach out to one of our team members to learn more about our fraud services.