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Home > Banking Services > Checking > Other Types of Check Fraud
Other Types of Check Fraud
In addition to forgery and counterfeit, other, less-known techniques of check fraud exist and can put in danger an individual or an entire company. Some times, criminals use legitimate check stock but modify some fields of the document so that, for instance, the payment goes to the wrong person. The written amount and courtesy can be made bigger, resulting in overpayment to the payee. In addition, other checks have been modified by changing the MICR line inserting false information such as the account number or the routing or transit number to delay the clearing or return process. Checks can also be modified to include information that aids the criminal in negotiating the check, such as lifting bank officer approval stamps from one check and including them on another check of higher value.
Another less common form of fraud is called “check kiting”. It requires multiple bank accounts and the movement of monies between accounts. The check “kiter” takes advantage of the time required by a bank to clear a check. A check drawn on one bank is deposited in a second bank without having proper funds to cover the check. When the deposit is made, the bank grants the depositor a conditional credit and will allow the customer to draw checks against uncollected funds. Then, the customer writes a check on the second bank and deposits it in the first bank to cover the original check. Unless detected, this process can continue indefinitely, covering one check written against insufficient funds with another check.
Something you should be aware of is that third-party bill paying services are commonly misused to commit check fraud. The checks provided by third-party payment services do not include the payer signature. The signature line reflects something such as “signature onfile”, instead. Unauthorized checks made by these service providers are usually not detected until the customer reviews the monthly billing statement. By the time the customer identifies the unauthorized check, it is often too late to recover the funds, since the “24-hour window” (actually until midnight of the next banking day) for the timely return of checks has long since passed. These checks usually sail right through the check sorting operation since they include valid account information and sometimes even include legitimate serial numbers. Too often, both business and individual account holders seem unaware of how their account information, given too freely to a requesting party, can be used for fraudulent purposes.
Finally, there is another practice committed by criminals, which is the misuse of demand drafts. This fraud consists of the use of account information to obtain funds from the bank account of a person without the signature of that person on a negotiable instrument. While there are many legitimate business uses of demand drafts, such as quick-turnaround telephone transactions initiated by airlines and car rental companies, demand drafts have been used by deceptive telemarketers who obtain bank account information and withdraw unauthorized funds from the bank accounts of the consumers, while they do not even imagine that such withdrawals are occurring.
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