Check Fraud – An Ounce of Prevention is Worth a Pound of Cure

By Andy Hoffman, VP, Payments and Cash Management at Bankers’ Bank

The best way for banks and customers to combat check fraud is prevention. Trying to recover funds after check fraud occurs is a difficult task, with strict deadlines.

According to a recent FinCEN article*, “Bank Secrecy Act reporting for check fraud has increased significantly in the last three years. In 2021, financial institutions filed over 350,000 Suspicious Activity Reports (SARs) to FinCEN to report potential check fraud, a 23 percent increase over the number of check fraud-related SARs filed in 2020. This upward trend continued into 2022, when the number of SARs related to check fraud reached over 680,000, nearly double from the previous year’s amount of filings.”

While annual check volumes decrease, check fraud is rising exponentially. The most common check fraud scheme are:

The key to fighting fraud starts with preventions. Here are three effective customer prevention tactics:

Also, the banks can protect themselves by reviewing their DDAs’ Terms and Conditions/Deposit Account Agreement, pertaining to the customers’ liability when unauthorized checks are reported late. Late would be if the customer notifies their bank to return a check later than the business day following the banking day on which the check was presented.

When check fraud occurs, the timeframes are short for returning checks. For check returns to be timely, according to Reg CC (229.31(b) Expeditious return of checks), the check has to be received by 2:00 pm local time on the second business day following the banking day on which the check was presented to the paying bank.

To avoid the bank or the customers being impacted by check fraud, the most effective and inexpensive method in your toolbox is prevention.

Please contact your Bankers’ Bank Correspondent Banker to discuss check fraud prevention.