ITRC Fact Sheet 126 - Checking Account Fraud

This guide includes:

• Victim Response Tips
• Summary of Check 21- the new federal law about checking accounts
• Reduce Your Risk
• Resources

Checking account fraud can be the most difficult type of financial identity theft to resolve. Identity theft is limited to a thief’s creativity, brazenness and skill.  Unfortunately identity theft related to checking accounts is a nightmare that truly keeps on taking.  If you are a victim, resolution is not an easy process, but one that you will reach by staying on top of things, keeping highly organized and following the advice below. There are many forms of check fraud:

• Check theft - when the thief uses existing checks stolen from you
• Check washing - when a thief takes an existing check and chemically washes the name of the recipient and amount from the check, altering it.
• Checking account takeover - when a thief adds his/her information to your account, changes the mailing address, or makes other alterations to your account for unlimited access.
• Check counterfeiting - when a thief takes blank check stock and creates additional checks that mirror your true account. Your checking account routing information appears on every check and deposit slip you have.  It doesn’t matter if the account is open, closed, or has enough funds in it.
• Check synthesizing - your name and address appears on a check for an account that you never opened, perhaps at a bank you don’t use, and in fact, might never have been a real account at all.

NOTE: Each type of check fraud requires a slightly different response from you and has different pitfalls.

Due to the complexities and variations of these five categories, check fraud is probably the most misunderstood type of identity theft crime. It is truly a crime of the computer generation. Anyone with a PC and a printer can create a check. Unfortunately, unlike credit cards, there are no universal programs – to date - that merchants can subscribe to in order to verify if it is authentic and belongs to the person who is cashing it.

One of the great misconceptions that consumers have is about scanners. Many people believe that the scanners used in stores connect to a universal system. That is not true. They only tell the clerk if you owe money to that particular store or to the group of stores using the same system.

This lack of a universal check clearance system is the loophole check fraud artists take advantage of when committing this crime. Merchants don’t know if the check has been stolen, is part of an account you closed years ago, has been counterfeited or synthesized. Essentially, they are as much a victim of this crime as you are. And if they are a small business, that loss may be very significant.

As in most “jobs”, the thieves get better at this crime the longer they work at it. Checking account fraud can go on for years, until the criminal tires of the game or is caught. 

VICTIM RESPONSE TIPS:
These tips are for everyone, no matter what type of case it is.

• Organization of your case is important. See ITRC Fact Sheet 106 - Organizing Your Case for more information on this topic.
• With any check fraud, you should report the crime to the police as soon as it is discovered and get a copy of that report. You will need to send a photocopy of the report, along with a letter or fraud affidavit, to any merchant, collection agency or financial institution where a bad check has been passed. See ITRC Letter Form 126 - Initial Victim of Identity Theft Statement and Fraudulent Checking Account Information Request.
• All requests should be made in writing and in a timely manner.  All correspondence should be sent “certified mail, return receipt requested.”
• Whenever possible, speak with the fraud investigation department and not customer service or bank managers.
• Close any compromised financial account. When working with the fraud department, ask that a password be placed on the account, especially if the financial institution refuses to close it. This will also help to verify or authenticate you as the holder of the account.
• Warrants - It is possible that a criminal warrant will be issued, by the local prosecuting attorney, for a bad check (if written for more than several hundred dollars).  Once you make contact with the merchant or financial institution, ask if they have referred this to the police, the state’s attorney, or the district attorney’s office. If so, request that the merchant or financial institution contact that agency and request they withdraw that warrant.  The ITRC recommends you also contact the prosecutor. Find out what documents they need in order to clear the warrant. Make sure you receive a letter stating that the warrant has been withdrawn/cleared, and that your name is not in the warrant system.  Your name needs to be cleared from the local level database, state level database and national level database (if placed there).  You can call the “Court Clerk” in the county where the check was passed to find out if a warrant exists in your name.
• Contact all the check verifications companies listed below.  If a check is denied, ask the merchant which Check Verification company they use so you know where to start.  You have the right to have erroneous or fraudulent information removed from the report, upon written request and with proof (i.e. a police report or a collaborating letter from a bank, per FCRA).
• A federal program, called CHECK 21, has significantly restructured the banking industry.
  • Checks are now electronically recorded then shredded.
  • Check 21 creates a paper copy of an electronic image of a check. There are 3 types of checks available to the account holder. It is important to realize that each type of check carries with it different protections.
    • Image statement, which is copies of your checks each month on a single page, is not suitable for legal dispute purposes.
    • A simple copy of the check which does not bear evidence of processing, is not suitable for legal dispute purposes.
    • A substitute check is a photocopy of the electronic image of the check and is considered a legal equivalent to the original check. This copy is required if you want the right to dispute any issue involving that transaction.
• IT IS CRITICAL that you carefully review each bank statement when you receive it to monitor for check fraud. Most financial institutions will only accept fraud claims 30-60 days after a statement has been mailed (stated in the notices on the back of each billing statement).  Any discrepancies you find should be immediately reported. Discovery of issues beyond the deadline, make it nearly impossible to correct any problems.

Check theft:

• Notify your bank both orally and in writing. Immediately close this checking account and any connecting financial accounts. Request a Stop Payment be placed on stolen check number/s.
• Request for a “re-credit” or refund of the lost funds.
• Request your bank flag the check/s as stolen. Your bank should notify the receiving bank to hold the check intact for law enforcement purposes. In other words, ask them to flag it so they can make sure any accepting bank holds onto the check rather than destroying it as they are allowed to do under Check 21.
• Get a copy of the check for your file - requesting a substitute check if you cannot get the original.
• Make sure you get a Letter of Clearance or confirmation from your bank that the account has been closed and is marked “closed due to theft and not to be reopened.”
• Save this letter and send a photocopy of that letter and the police report to any merchant who has accepted a check from the closed account.  ITRC Letter Form 126 may be used as a cover letter to the merchants, or check verification companies, which may have accepted fraudulent checks written with your information.
• Request letters from each merchant once they have declared that you are not responsible for the charges.  Keep these in a locked area for at least 10 years.
• Open a new account, adding a strong password so that no alterations can be made to this account such as change of address, adding additional users, etc., without your permission.
• Request that your bank notify all check verification companies.  Most check verification companies will not take information from consumers.

Pitfalls: Merchants don’t know this account is closed and may accept checks long after you have closed the account.  Be patient. They are also victims of this crime.  The other problem is that you may need to write many letters, depending on the activities of the thief.

Check washing:

• Your immediate problem is the one check which has been altered.  Notify your bank and have the fraud unit investigate the situation.  If the check has not yet been destroyed (under the new Check 21 program), then they may be able to find the proof of alteration.
• Your second problem is that the thief now has your bank account number. Immediately close the account and follow the directions for Check Theft.

Checking account takeover:

Warning signs are:

• You don’t receive your bank statement
• You receive a notice from the bank about a unknown change
• Checks have signatures which are not yours
• Withdrawals, bank transfers or deposits you cannot account for
• Merchant notification about a bounced check you did not write
• Having a check declined by a merchant, and you have not bounced any checks
• A letter from a check verification company or a district attorney about a problem
• Should you discover you are a victim of account takeover, immediately notify your bank, close the account. Ask questions of the bank (fraud division) to determine how, when and where these modifications were made. Other questions to ask - did they ask for a password or your Social Security Number?
• If you believe the perpetrator was someone inside the bank, change banks.
• Follow the directions for Check Theft

Check counterfeiting:

Warning signs are:

• Your statement contains checks you never wrote. It could be a check that follows the number series you use or starts a new number series.  These checks could also be check numbers you already used.
• You receive a notice from the bank about a fraud issue
• Checks have signatures that are not yours
• Checks used are a different print or style format than yours
• Withdrawals, bank transfers or deposits you cannot account for
• Merchant notification about a bounced check that you did not write
• Having a check declined by a merchant (you have not bounced any checks)
• A letter from a check verification company or collection agency
• A letter from a district attorney about a problem
• Notification about a warrant for passing bad checks
• If these checks are written against your account, close the account. Open a new one and follow the directions for Check Theft

Check synthesizing:

Warning signs are:

• You receive an inquiry from a bank you don’t use
• You receive an IRS income statement from a bank you don’t use
• Merchant notification about any check you did not write
• Having a check declined by a merchant
• A letter from a check verification company or a collection agency
• A letter from a district attorney about a problem
• Notification about a warrant for bad checks
• You can’t close an account that doesn’t exist.  You can’t notify every bank in the country. However, request that your bank notify the check verification companies about this problem.
• Request that any fake checks be held intact and provided to law enforcement.
• Again, write each merchant ITRC Letter Form 126 and explain the situation, including the fact that there have been X number of checks written so far and that all have been reported to the police.
• Remember to update law enforcement as new checks are discovered and obtained.

A NEW LAW YOU SHOULD KNOW: CHECK 21
For a full summary go to:  www.consumersunion.org/finance/ckclear1002.htm or the FDIC’s Check Clearing for the 21st Century at http://www.fdic.gov/consumers/consumer/alerts/check21.html

What are the main changes under "Check 21”?

• Under Check 21, original checks will be either kept or destroyed by the receiving bank. Nothing in the law states how long a check must be kept. In other words, if you bank at one bank, and the check is cashed at a different bank (not a branch of your bank), then the other bank decides when and if to destroy the check. With this program, you will most likely not receive your checks returned with your statement.
• Checks you write will clear sooner, increasing the risk that a check will bounce if funds are not in the account when you write the check.
• You may not get access to the funds from checks you deposit any sooner, because the new law does not effect check hold times.
• Under Check 21, different kinds of copies of a check will have different rights attached. Check 21 creates a paper copy of an electronic image of a check. One type of copy is called a substitute check, which will be a photocopy of both the front and back of your check. Only this substitute check can be the legal equivalent of the original check. A substitute check is required if you want the right to re-credit the disputed funds. A regular copy of a check does not carry these same protections. If you ask for a copy of a check, your bank may send you an ordinary copy instead of a substitute check and that alters your legal rights and protections. Always request a substitute check.
• (Per summary at Consumers Union) - Consumers will get new rights for some electronically processed checks, but not for others. When a so-called substitute check is provided to a consumer, Check 21 gives the consumer a right to have funds of up to $2,500 re-credited to the consumer's account in 10 business days if the check is paid twice, paid for the wrong amount, or otherwise paid in error. The statute is ambiguous about whether this new right applies when a paper substitute check is used in the processing of the check but is not returned to the consumer. The regulations restrict the right of re-credit only to checks where the consumer was provided with a substitute check. If a check is processed electronically by all the banks it is routed through without the use of a substitute check and the consumer is not provided with a substitute check, then the check remains under state check law. In that case, the consumer does not receive a 10 day right of re-credit even if the electronic image of the check is paid twice, paid for the wrong amount, or if both the electronic image and the paper check are paid. Only the special substitute check can be legally equivalent to the original check to prove payment. The copies that a bank sends to consumers under a so-called "voluntary truncation" agreement, where the consumer agrees not to get the checks back, do not prove that a payment has been made, and do not trigger your Check 21 re-credit right.

REDUCING YOUR RISK OF CHECK THEFT/FRAUD:
You can reduce your potential risk of being a victim of this crime by practicing a few safety tips:

• Always receive mail in a locked mailbox.  Go to the post office to send mail that contains a check.
• Cross-cut shred all unused or old checks prior to disposal.
• Use credit cards when possible.  Don’t carry your checkbook or deposit slips, unless necessary. Keep them in a secure, locked place in your home.
• Only use checks with merchants you know and trust.  Remember anyone receiving your check has access to the checking account information.
• Take time to learn about Check 21 and your bank’s policies.  You can ask about receiving “substitute checks”, though there may be a reasonable fee.
• Monitor your account statements closely.  If you find an error, report it immediately to your bank both orally and in writing.  Make any requests for re-credits in writing.
• Add strong passwords to all credit and bank accounts.
• When creating PIN numbers, do not use a number easily associated with you such as your birthdate or anniversary.
• Never have your Social Security Number or Driver’s License number printed on checks.  You might want to consider using just your first initial and last name imprinted instead of your full name.  If you use a PO Box, use that on the check instead of your home address.

RESOURCES:

To report fraudulent use of your checks:

• ChexSystems: (800) 428-9623
• Certegy/CPRS: (800) 437-5120
• SCAN: (800) 262-7771
• TeleCheck: (800) 710-9898

Several of these companies do provide a “consumer report.” Order reports from those that do provide them.  They should be free.

Security Alert:

ChexSystems and SCAN will let you place a 90-day Security Alert on your consumer report with them.

Phone: 800-513-7125
Or: 888-4-STOLEN
Website: www.consumerdebit.com

For Instructions on how to place the Security Alert click here

Credit Reports:
Should you fear that the thief has your Social Security Number, contact the three Credit Reporting Agencies - put a fraud alert on your report and order your free report to which you are entitled as a “victim of identity theft”.

• Equifax- (800) 525-6285
• Experian (formerly TRW): (888) EXPERIAN  (888-397-3742)
• Trans Union: (800) 680-7289

Federal Trade Commission (FTC) www.ftc.gov/idtheft
The FTC offers information for victims.  File your case with the FTC Consumer Response Center.  Include your police report number.  Use the FTC uniform affidavit form.

• (877) IDTHEFT (877-438-4338)
• www.ftc.gov/bcp/edu/pubs/consumer/idtheft/idt04.shtm

Copyright 2010, Identity Theft Resource Center®, all rights reserved. Created by ITRC