Identity Theft Credit Repair

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

Forged signatures 24%

NSF checks 17%

Counterfeit 15%

Closed accounts 10%

Forged endorsements 7%

Kiting 4%

Alterations 3%

Stop payment 3%

Other 17%
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.”

You’re on your own

But identity theft experts, consumer advocates and federal regulators paint a different picture.

Paper-check transactions don’t have the federal protections that cover electronic transactions such as credit card, debit and automatic payments. A consumer isn’t required to pay a fraudulent charge on a credit-card bill, for example, until the issuer investigates and resolves the dispute, which it’s required to do within two billing cycles or 90 days, whichever is longer. A fraudulent debit charge or automatic payment must be investigated within 10 days, or within 45 days if the bank credits the disputed amount (up to $2,500) to the consumer.

By contrast, users of paper checks are at the mercy of their banks and varying state laws.

“There’s no (federal) regulation that covers lost or stolen checks,” said FDIC spokesman David Barr. “It’s really on a bank-by-bank basis.”

To avoid liability for fraudulent checks drawn on their accounts, customers typically must notify their banks within 60 to 90 days of when the bogus transactions appear on their account statements, said Tom Fox, a financial services attorney in Washington, D.C.

The timeline and procedure for reporting fraud is generally spelled out by the consumer’s deposit agreement with the bank, Fox said.

The ID theft center’s Foley said banks’ policies toward victims seem to vary enormously, with some resolving fraud reports relatively quickly and others maintaining an attitude that their customers are guilty until proven innocent.

Differing bank responses are among the reasons he recommends victimized consumers report fraud in writing, sending the letters by certified mail, return receipt requested, to create a paper trail in case a dispute drags on.

“Too many people call up their bank and are told, ‘Okay, we’ll take care of it,’ and it doesn’t happen,” Foley said.

Victims may also need to contact merchants that accepted bad checks to head off or resolve collection actions. If the bad checks were large — several hundred dollars or more — the case may be turned over to local police or prosecutors. Victims can ask the merchants if that’s the case, or check with the county clerk in the area where the check was passed to see if arrest warrants have been issued in their names. If that’s the case, victims need to contact the appropriate law enforcement agency and provide documents to get the warrant killed.

And victims should hang on to all the paperwork generated by this battle, Foley said, because the fight may not be over.

“After you get it all straightened out,” Foley said, the thief can “resurrect the account and do it again.”

8 precautions for check-writers
Fraud experts recommend the following steps to reduce your risk of becoming a victim:

Lock up your checks. Carrying a checkbook around with you is asking for trouble. So is leaving checks or a checkbook out in the open. Secure your checks in a locking file cabinet or other safe location and shred any check, used or blank, before discarding. If you’re mailing a check, do so at the post office rather than leaving it out for the mail carrier to pick up. Pick up new check orders at the bank or have them sent to a locking mailbox.

Write checks only to merchants and people you trust. Anyone who has your check has the information they need to commit check fraud. “Every time you go to the supermarket and write a check, you’re handing over your account number,” said Fox, who counsels financial institutions about laws governing paper and electronic transactions.

Use gel pens when writing checks. Frank Abagnale, the reformed fraudster who inspired the movie “Catch Me If You Can,” recommends this method to discourage check washing. Gel pens resist the chemicals used to erase checks.

Use credit or debit cards while shopping. As noted above, you have more protection with electronic transactions than with paper checks.

Consider online bill payment and other electronic methods. The fewer checks you have floating around in the mail, the better. While you’re at it, you might consider suspending paper statements as well, as I discussed in “Go paperless for safer banking.”

Monitor your bank statements closely. Failing to detect and report check fraud within a couple of months could leave you on the hook for any losses.

Report stolen checks to the police. You may have to insist they take a report, since some departments are still reluctant to handle such crimes. But a police report can be invaluable in convincing banks and merchants that a theft occurred.

Close compromised checking accounts immediately. Once a thief has written a bad check drawn on your account, the account number may be reported to check verification companies, which may make it difficult if not impossible for you to get legitimate checks accepted. If a thief has opened a new account pretending to be you, your name may also be in ChexSystems’ database, which could make it hard for you to open future accounts. You can find out what ChexSystems is saying about you by ordering a free copy of your report using its Web site or by calling 800-428-9623.

Liz Pulliam Weston’s column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.

That’s pretty scary stuff. Horrifying actually. Be careful! It’s a jungle out there.
Stay safe. Prevention is MUCH better than recovery!

Clyde Blaco

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