How to Defeat Rising Check Fraud in 2024

Back about 2,000 years ago, Ancient Romans, Indians, and Persians all had some form of a check-type payment method. The checks we know today date back to early 1700s Scotland. In those hundreds of years, checks themselves have changed very little. Somewhat surprisingly, though, they haven’t fallen away in the same manner other dated payment methods, like coins, have.

Considering the user experience for checks, this makes sense. A check is more or less a banknote in any amount you wish to send. They’re convenient to get, easy to write, and accepted worldwide. During the height of the COVID pandemic in 2020, the U.S. government chose checks as the form through which it would disperse emergency stimulus checks to citizens. Many point to this as the inflection point for what is now bordering on a fraud epidemic.

665,000 Suspicious Activity Reports (SARs) related to check fraud were filed by financial institutions (FIs) in 2023, an alarming 134% increase from the 284,000 in 2020. That concerning spike triggered FinCEN to issue an alert about the rapid increase in check fraud via mail theft. But stolen checks aren’t the only reason check fraud is proliferating this much. In this post, we’ll share some of the other major drivers of check fraud in the past few years, reveal the fraud operations behind them, and share the best strategies to start building strong check fraud prevention.

How check fraud happens in 2024

Modern check fraud scams utilize the same tried and tested tactics that fraudsters have relied on for years. None of these are exactly “tech savvy” scams in the way many digital bank frauds are, but they are both highly effective and omnipresent nonetheless. No matter the method of eventual fraud, every check-related scam follows the same step-by-step process.

1. Acquire the check

Fraudsters get their hands on checks in a handful of ways, but the most common is mail theft. Checks are sent through USPS every day, going from mail carriers’ bags into locked mailboxes that only postal workers have keys to. These universal keys, or arrow keys, are a prime target for check fraudsters. So, check fraud rings will have members on the ground who assault postal workers to steal these keys or steal mail directly from the truck.

Cynthia Wallace from DCI detailed this type of attack in the recent DEFEND webinar on preventing check fraud, saying “Businesses have CCTV video of thieves opening entire mail kiosks—it’s like winning the lottery (for the thieves.) They’re presenting this to the USPS, but there just aren’t enough postal inspectors to investigate let alone bring many of the criminals to prosecution.”

2. Doctor/change the check

Traditional checks don’t have fraud detection methods like holographic stickers or non-removable ink like high-security checks do. That means fraudsters can take a fully written check, scrub the ink away using acetone, and then fill it out again for any amount they want, payable to themselves.

So, as an example, let’s imagine a couple mails a check to pay their water utility bill from their checking account and the check is stolen through mail theft. The fraudster simply needs to wash the check and rewrite it to take as much of the couple’s checking balance as they want. Of course, stealing money via check fraud requires the same thing every check does to become actual currency—a deposit.

3. Deposit the check

Fraudsters don’t handle every step of the check fraud process themselves. To deposit fraudulent checks, fraud rings use what they call “walkers.” These people, who usually find work through encrypted communication apps like Telegram, are willing to take on a large amount of the risk in depositing fake checks for a piece of the overall profit.

4. Access the stolen funds

Once a fraudulent check has been deposited, fraud rings typically move quickly to launder it and create a paper trail. They may transfer the money to a separate account, have a money mule transfer it for them, or withdraw it in small amounts via multiple fraud ring affiliates called smurfs.

Fraudsters also run paperhanging scams, where they will write a check for an amount that the account the check is connected to doesn’t have the funds to cover. The fraudster withdraws the amount before the check fully settles to abuse the float time between check writing and check deposit.

Why is check fraud rising so rapidly?

At first glance, rising check fraud seems completely incompatible with how often we use checks. The Boston Fed cites Americans as having reduced their choice of checks as a payment method by 82% over the last 30 years. So, if we’re using fewer checks than ever and banking is more digital than ever, how is check fraud more rampant than ever?

As with many financial crimes, the answer is that check fraud is both easy to successfully pull off and accessible to a wide amount of criminals. It’s very low-tech, as we saw in the anatomy of a check fraud scam, and most of the real criminal work is done physically. Check fraud doesn’t require a deep knowledge of banks’ fraud prevention systems and how to bypass them. Nor does it involve tricking legitimate banking customers into handing over key information, as many other bank frauds do. All a fraudster needs to do is get their hands on a regular check and they can defraud the sender with ease.

Working as a crime ring makes this process even easier for fraudsters. Mail theft is a major contributor to check fraud, so much so that the US Postal Service is working with law enforcement to crack down on postal crimes and make a concerted effort to protect postal workers. One key area they are fighting against mail theft is by replacing as many of the universal “arrow keys” as they can to limit fraudsters’ ability to access mailboxes themselves.

Fraudsters that leverage new technology, like mobile banking apps, can also run check fraud scams quickly and effectively. They can manipulate and deposit checks that trick the mobile check deposit systems, exploiting FIs’ lack of investment in advanced fraud detection and prevention technologies to exploit the defense gaps that remain.

What are the ways to prevent check fraud?

The best defense against check fraud is ensuring your FI has the proper modern detection and prevention protocols in place. That means educating your team to spot suspicious activity surrounding check deposits, leveraging data from every part of your organization to have a complete customer profile, and utilizing a machine learning and AI-powered fraud platform.

When educating your team, help them understand the signs of check fraud and how to flag them. This includes:

• Mobile deposits for checks using images from a phone’s camera roll
• Checks written for large amounts that deviate from a customer’s usual behavior
• Unusual recipients of checks from a known customer

Advanced supervised and unsupervised machine learning technologies go a long way in revealing check fraud ring activity and reducing false positives to preserve customer experience. As Mitek Director of Product Management James Watts said in the recent DEFEND webinar, Effective Strategies to Fight the Rise of Check Fraud, “Having the right data is key, but also taking it a step further like DataVisor does and cutting through that noise of data. Because what often comes with fighting fraud is the false positive problem.”

With holistic fraud solutions that cover fraud detection and prevention from end-to-end with real-time detection and prevention measures, your fraud team can accurately and proactively fight check fraud. Dive deep into these solutions and their capabilities by watching our recent DEFEND webinar on preventing check fraud on demand.