9 Most Common Types Of Check Frauds

Checking accounts are among the most popular ways for people to deposit their money for different reasons. A bank account is just as easy to open as any other kind of checking account, but there are two main reasons why people choose to do this: to save money and to protect their credit rating.

When you have a good banking history, it helps you secure loans, get lower interest rates and qualify for better mortgage terms. It also helps you avoid having to pay fees and penalties if you do your checks the right way.

 

Fake Check Scams:

Types Of Check Frauds

Check fraud is a broad catch-all phrase referring to a number of different types of financial crime. It can involve (but is not limited to) check kitting, swindling, check fraud, and phony ID theft. The most common type of check fraud that people commit is “cheating” – getting someone else to write a check for someone else. You’ll hear people talk about “tag-teaming,” where you’re supposedly getting two people to authorize a check to another person. And there are plenty of stories about ordinary citizens who have been cheated out of their retirement or tuition money by these kinds of thieves.

 

Different Ways of Check Frauds:

However, while check fraud can occur in a variety of different ways, the most common technique involves writing a check in someone else’s name.

There are lots of different kinds of techniques that you might use to accomplish this, but the most common is probably “check kitting.”

This is when you write in somebody else’s check for a debt they owe you by using their name. Some people do it just to steal someone’s identity, but most people do it because they are afraid of getting caught.

 

What is Check Kitting?

Check kiting is usually done when somebody needs to pay a bill and doesn’t have enough money in their first account to cover the payment. To avoid being caught, they put a second account in their name.

For example, if they owe you money for a past bill, and you don’t have enough cash, they might put a second account in your name, allowing them to make the payment with a check from their company, which they already have. Then they take the money they got from you and write the check for someone else.

 

In other cases, some people use different kinds of fraud to hide the trail of illegal activity they’ve done. For example, some people will write lots of checks for different kinds of expenses, such as car repairs, but never use those checks for their own expenses.

Instead, they will deposit the checks into their own bank accounts and only give a portion of the costs to their clients. This way, if the authorities try to find out where the fraudulent charges are coming from, they won’t be able to trace them.

To disguise their tracks, these people will go around reporting that the expenses on their credit cards were done by someone else.

 

Ways to Commit Check Fraud Kiting

There are many ways to commit check fraud kiting. It doesn’t matter if you just want to create two accounts, use someone else’s name to apply for a loan, or hide the trail of losses. The best way to prevent it is to know what you’re doing. Keep track of all your financial transactions. If you spot any kind of unusual activity, contact your bank immediately to inform them.

While checks are long removed from the private sector, they play a significant role being played in institutional payment, exchange, and international transfers. Checks for transit, cashier’s checks, money orders, and treasury checks remain frequently utilized.

It shouldn’t come as a surprise then that fraud on checks is widespread. The check fraud scene isn’t nearly the glitzy as it might appear to be if your sole source of inspiration is The Steven Spielberg movie “Catch Me If You Can”.

Fraudsters employ a range of different kinds of check fraud to extort cash from businesses and individuals. These are just a few of the most frequent types of frauds that could affect your financial institution as well as your customers.

It can, however, cost companies and institutions millions of dollars every year. This is a brief overview of the various types of frauds on checks institutions should be aware of.

Types Of Check Frauds:

Types Of Check Frauds

1. Paperhanging

Paperhanging is one of the most well-known forms of fraud committed by check that takes advantage of the trust of institutions.

The fraudster can either write a fake check and then disappear with merchandise or open a new account that is empty and issue checks from it that are hard to get cleared.

It’s not a complicated scam. Be aware of new account holders that deposit checks.

 

2. Forgery

Forgery is the simplest and obvious form of fraud that checks can be – but this doesn’t mean it’s not difficult to protect against without smart check fraud strategies to be in play. Forgers simply pretend to be someone else.

They accomplish this by creating a fake signature on the check or by forging the endorsement. Certain forgers have earned themselves a reputation for their signature-stealing abilities. One of the most famous signature forgers ever was the beginning of the 20th Century American Joseph Cosey.

 

3. Check Kiting

A check-kiting fraud that makes use of two accounts. The bad checks are written through one of the accounts to another. When the check has cleared the account into which it was deposited will see a rise in the amount.

When the fake report is made public and the check is refunded, the money will be taken out of the second account, and the culprits will steal the cash.

 

4. Check Floating

The check floating scam is a complicated and frequently small-scale scam that involves the creation of a fake check to profit from the ‘float time’ prior to when it is deposited into an account.

Check floaters can write a bad check in two accounts, and bounce it back and forth during the time of float which is basically clearing the check with floating money that is attributed by the bank to the check.

It’s similar to check kiting, but it doesn’t typically result in institutions making an expense. Check floating was historically employed by people to collect rent payments just a few days prior to payday.

 

5. Chemical Alteration

Also called “check washing,” the forger uses an assortment of chemicals to remove the ink on a document before filling the blanks with the information that best suits the forgers.

The chemicals that are used are solvent-based, which means they break the bonds between ink and paper. Check washing is a rising issue within the United States – with criminals taking over mailboxes and stealing checks that small businesses use at alarming rates.

 

6. Fake Paycheck Scams

In a fake pay scam, the fraudster calls their victim to offer them work. The job is usually to act as an uninitiated shopper or to test using a wire transfer. The scammer pays a check to the victim and then gives the victim directions.

Typically, the victim will need to test the service of wire transfer by paying money to a different person. The check was sufficient that it could cover the wire and the payment.

If the check is rejected, the person is left without anything and is unable to access the money wired.

 

7. Fraudulent Lottery Checks

Another variant of this scam is the fraudster informs a victim that they’ve been lucky enough to win the lottery. They are presented with a check for the amount they won but are told to return the money to pay for taxes and fees.

When they realize that the check was not valid, the money they received to cover taxes and fees has been refunded.

 

8. Bad Checks for Purchases

In a second check fraud, the fraud person contacts someone selling items on the internet. In some instances, it is possible to go to an estate sale or other in-person sale. They will then request an unpaid check for the amount they purchased and then receive a change.

In order to convince the victim into saying yes and to get their money back, they could offer to pay more to purchase the item.

For example, if the buyer is selling their bike at $500. The con artist might offer a check of $800 if the seller agrees to offer the amount of $200. The seller believes they are earning an additional $100 by being accommodating but in reality, the check is a fraud and the seller will end up losing their bike, as well as the $200 in cash.

 

9. Money Order Fraud

The check fraud begins with a fraudulent money order. The fraudster issues the victim a cash payment and asks for the payment in the form of a check. They can use all sorts of excuses in order to persuade the victim to accept the trade.

However, once the victim deposits the money into their account at the bank they discover the money order wasn’t legitimate and they forfeit all the money they received from the check.

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