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Millions of Americans unknowingly carry ticking time bombs in their wallets and purses.
The potential instrument of their financial destruction? Paper checks.
Familiarity has bred comfort with the lowly check, but identity-theft experts say a criminal who swipes a single check -- or even a deposit slip -- from your checkbook can cause far more long-lasting damage than one who gets hold of your plastic.
"If someone steals your credit or debit card, you call your bank, the card is canceled and replaced and all those (fraudulent) charges are going to disappear," said Jay Foley, co-founder of the Identity Theft Resource Center in San Diego. "If someone steals a check . . . you may not be done (dealing) with that for a couple of years."
The lack of federal protections for paper transactions, widely varying bank policies on how victims should be treated and the potential criminal repercussions of bad checks can create an ongoing nightmare for consumers. And while the number of electronic transactions through credit and debit cards passed those by paper check for the first time in 2004, checks still represented the largest amount of transactions -- $40 trillion worth.
Consequences more serious
Some victims the center has counseled, Foley said, found themselves the subject of arrest warrants after thieves hijacked their checking accounts and wrote bad checks. The more persistent or well-traveled the thief, the worse the potential fallout for the victim.One criminal "can write 30 bad checks and drop them in 30 different jurisdictions," Foley said. "Guess who gets to deal with ... 30 different merchants, 30 different collection agencies and 30 different law enforcement jurisdictions and prosecutors? The person whose name is on the check."
Check fraud can take a variety of forms, including:
- Forgery. Legitimate checks are stolen and signed or endorsed by a thief. Sometimes the fraudster will swipe checks from the middle of a checkbook or make off with a deposit slip to delay detection.
- Counterfeiting. Criminals can make copies of legitimate checks using color copiers, or simply order a new batch of checks from a printer using the victim's account information.
- Alteration. A thief changes the amount or payee of a legitimate check, sometimes with the help of chemical agents (known as "check washing").
- Paperhanging. Writing checks against a closed account is one of the most common forms of check fraud.
- Account takeover. Thieves pose as legitimate customers or add themselves to legitimate accounts and then change the address or make other changes in the account to gain access.
- New account fraud. Thieves use a victim's identity to set up a new account, often depositing a fraudulent check and then writing bad checks against the account.
Check fraud rises as checks fade
Whatever the method, check-related fraud is definitely on the rise, according to bankers, retailers and fraud experts. Criminals attempted to pass more than $5.5 billion in fraudulent checks in 2003, the latest year of the American Bankers Association's biennial survey on the issue. That was a 27% increase from 2001.| Banks' check-related losses | |||
|---|---|---|---|
Type of fraud | Losses | Type of fraud | Losses |
Forged signatures | 24% | Kiting | 4% |
NSF checks | 17% | Alterations | 3% |
Counterfeit | 15% | Stop payment | 3% |
Closed accounts | 10% | Other | 17% |
Forged endorsements | 7% |
Source: American Bankers Association
"The attempts have gone up dramatically," said ABA spokesman John Hall. "The fraudsters are trying newer and improved schemes all the time."
Hall said banks have done a good job at detecting and thwarting most check fraud, capping the institutions' actual dollar losses at $677 million -- a slight decline from $698 million in 2001.
Hall also insists that consumers who detect and report check fraud promptly to their banks "will always be made whole."