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Why Is Check Fraud So Rampant Again in the U.S.?

Over the last two years, we have witnessed a lot of change in fraud and risk in our industry.

Although check circulation has been declining for some time, check fraud attempts have been dramatically increasing over the last several years. In fact, according to Aite, check fraud currently makes up around 60% of all attempted fraud against U.S. financial institutions. Let’s explore why check fraud continues to present a fraud risk, and how it is impacting accountholders and financial institutions.

Today’s Fraudsters Upping Their Game
With the push for EMV chip technology in 2016, we started seeing a pivot to those tried-and-true methods of virtual bank robbery. As most fraudsters do, they moved back to a well-known method of fraud – check fraud. In fact, because of sophisticated print, design, and production technologies, fraudulent checks can be virtually undetectable.

Here on our team at Jack Henry, our boss received one of these fake checks mailed to his house. The check stock, security features, and embedded hologram features were all legitimate. In fact, these fraudsters had gone so far as to research bank executives and were able to duplicate an actual signature on the check. The only thing we can find that was an error was the MICR line check number did not match the check number in the upper right corner of the check. Aside from that oversight, this check would be virtually impossible to detect as fraud, and more than likely would result in a fraud loss for the financial institution accepting it and potentially the loss of an accountholder.

During covid, the average number of mobile check deposits jumped by 41%. This gave fraudsters the opportunity to bypass getting actual check stock as part of their check fraud scheme.

New and Emerging Scams
Unfortunately, check fraud isn’t stopping there. We have seen a large rise in the form of scams. Financial institutions we have worked with over the last several years are reporting that romance scams, secret shopper, and covid scams are just a few of the schemes targeting people. Fraudsters have been using social media to target potential victims as well.
Because of the rise of social media in a digital world, fraudsters are getting even more sophisticated. On the dark web, fraudsters are constantly sharing and selling personal information and best practices. With greater access to personally identifiable information in this digital world, we will continue to see check fraud increase. In fact, in a recent FrankonFraud article from February of 2022, check fraud was up 106%. That same article states that the below factors seem to be leading to the increase, and why many experts believe this trend may be around for a while.

  • Stimulus– Stimulus funds have dried up; fraudsters are turning to checks.
  • Social Media– Telegram is creating a booming black market for stolen checks.
  • New Accounts -Fraudsters open new accounts and exploit mobile deposits.
  • Scams– Scams are rising, driving more check fraud attempts.
  • Mail Theft– Checks are being stolen from the mail, then washed and deposited
  • Aging Tech– Banks aging check fraud tech can’t keep up with the newer schemes.
The Postal Inspector of the U.S. also recently reported an alarming trend in robberies of both stand-alone mailboxes and of postal carriers. They went as far as to tell people to stop using the blue mailboxes until their state changes the locks since criminals have been able to get their hands on master keys. One of the items fraudsters are stealing is checks – especially from businesses – that they can whitewash and reuse fraudulently. As you can see, fraudsters are figuring out new ways to commit check fraud.

Staying Vigilant and Key Prevention Measures
So can you do when it comes to check fraud protection? As a financial institution, having a solid fraud prevention program and detection technology is a must. We expect to see check fraud attempts in many forms continue to rise. You’ll need to have solutions that are real-time and can connect to many different avenues where checks are presented: including teller, mobile, and remote deposit capture systems. Solutions that stop fraud losses in real-time on suspected transactions across those channels are ideal because the funds will not leave your institution or post to an account until a fraud analyst can review the alert.

Financial institutions must remain vigilant because even “old school” check fraud attempts can be new again when there is an unsuspecting victim to aid their success. Ensuring consumers are educated on how fraudsters attempt to defraud them is a proactive way to keep check fraud at the forefront of their thoughts.