When Pam Berns sent out a few checks to pay bills, she had no idea that such a routine task would throw her small publishing business into chaos.
One of the checks she put in a mailbox on a street in Chicago's Lincoln Park was later stolen and rewritten to someone named Mark Pratt for $7,200. That put a charge on her business account, meaning she couldn't pay the printer, her monthly payroll taxes and her vendors.
Nearly two months later, 76-year-old Berns has not received the stolen money back from her bank, BMO, which is still investigating the matter.
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“A friend told me, 'Whatever you did to get robbed, just don't do it again,'” she said. “I just sent out checks. Most of us are vulnerable.”
What was once a routine way of paying one's bills—handwriting checks at the kitchen table or dropping envelopes into a blue metal box on the street—has become a risky endeavor: It provides the raw materials for low-level fraudsters and…sophisticated criminal gangs , which cost financial institutions billions. This has put banks on high alert, even though their efforts to detect the fraud regularly implicate innocent customers, leading to institutions suddenly freezing or closing customer accounts in the process. Many scammers manage to disappear without consequences.
“Fraudsters go where the money is easiest,” said Chad Hetherington, vice president at NICE Actimize, a financial crime firm specializing in fraud prevention.
Although the use of checks has declined rapidly over the past few decades, check fraud has increased sharply, especially since the pandemic. The cons may start with stealing pieces of paper, but they are using technology and social media to commit fraud on a larger scale, banking insiders and fraud experts say. In the past, criminals needed a special Internet browser that gave them access to the dark web marketplace for stolen checks, perhaps even someone to vouch for them. Now all they need is an account from Telegram, a messaging app.
“You can buy checks online for $45, with a perfectly good signature,” said John Ravita, director of business development at SQN Banking Systems, a provider of check fraud detection software. “There is a website that offers a money-back guarantee. It’s like Nordstrom.”
A recent spike in mail theft prompted the Financial Crimes Enforcement Network — a branch of the Treasury Department called FinCEN that is responsible for protecting the financial system — to raise alarm bells this year. Thieves have attacked mail carriers or stolen and sold the mail carrier's arrow keys, which can be used to open mailboxes in a specific area. The checks are stolen from the mail, and then criminals commit a classic fraud: They “wash” the checks with something as simple as nail polish remover, leaving the signature untouched. Others “cook” new checks by scanning and altering the old ones.
Some criminals deposit checks into their own accounts, while others offer them for sale. But the plans have become more sophisticated. Not only can thieves buy stolen checks; They can purchase bank accounts into which they can deposit these, as well as, among other things, the mobile phone number and device used to create this account.
Banks and credit unions are expected to file nearly 540,000 reports of suspicious activity related to check fraud this year, a record, according to a analysis of FinCEN data. That's about 7% more than in 2022, but more than double the levels in 2021, when fewer than 250,000 such reports were filed.
Regions Financial in Birmingham, Ala., has done its fair share: Last month, the company admitted to Wall Street analysts that it was involved in a check scheme that went undetected for so long that the fraud incurred costs – $136 million so far -Dollars in 2023 will double this year.
“It’s affecting everyone,” said David Turner, regional chief financial officer, at a banking conference in Boston last month. “It just doesn’t affect them enough where they need public discourse because nobody wants to talk about it.”
Regions fell victim to two measures this year. In one case, criminals heard that the bank was giving customers quicker access to funds deposited by check. “We opened the door too wide, bad people stormed in and we didn’t close the door in time enough,” Turner said. “What happens is they get on the dark web, talk to each other and just overwhelm the system.”
David Maimon, a professor of criminal justice and head of a cybersecurity research group at Georgia State University, acts like a secret agent, observing the deals that take place in dark corners of the Internet where criminals brazenly advertise their stolen checks using code words. The number of stolen checks in circulation rose during the pandemic, he said, as fraudsters discovered how easily they could commit such crimes.
In September, Maimon's group found nearly 9,148 stolen checks circulating in 80 select Telegram markets, up from 4,527 in February.
“This is just the beginning of a really long journey that we are going to experience,” Maimon added. “Not enough is being done.”
At the same time, banks' anti-fraud measures, no matter how well-intentioned, can backfire and upend consumers' financial lives.
Tyler Keefer's problems began when he sold his Kawasaki Ninja motorcycle. Accepting a check from the buyer caused Keefer's bank, Ally, to lock him out of his account, cutting him off from his primary source of income just before he was due to pay rent. Then he was completely excluded from the customer base.
“Freezing my account the day before rent was due felt diabolical,” said Keefer, 26, who lives near Lancaster, Pennsylvania. “That was all I could think about for the rest of the workday.”
The buyer came with his father to look at the bike. They left a $500 cash deposit, but Keefer said he would accept a personal check for the remaining balance on one condition: The amount must be cleared before releasing the bike. They agreed.
Keefer watched the buyer write a check for $3,000, and the money appeared in his account a few days later. However, the day after, the deposit was returned and Keefer's account – along with that of his fiancée – was frozen.
The check was deemed potentially fraudulent by the check-issuing bank, PNC, because it believed it contained the handwriting of two different people, he said. The bike buyer resolved the matter with his bank and ultimately paid Keefer in cash without incident.
However, Ally remained unmoved. “From their perspective, I had cashed a fraudulent check,” he said. “Ally wouldn’t talk to PNC about this. There was no turning back.”
Ally and PNC declined to comment.
“Funnily enough, I still have the check,” Keefer added. “I kept it as evidence. I was afraid that they would put something on my file and that other banks wouldn't take me. I kept all my information.”
Banks have to talk to other banks to get to the bottom of these schemes, and that alone can be a challenge. The American Bankers Association recently created a business directory to help bank employees working in their fraud departments more easily find their counterparts at other institutions who may be on the other side of a fraudulent transaction.
Once the connection is made, the most difficult task may be figuring out which bank is on the hook – an investigation that can take months. Fraud analysts examine the electronic image of the check rather than a physical piece of paper, which may contain more easily identifiable clues as to how the check was altered.
“Liability depends on which bank can best determine whether the check was genuine,” said Paul Benda, executive vice president of risk, fraud and cybersecurity at the banking association.
Was it stolen from a mailbox and then altered? In this case, the bank that deposited the check is usually responsible. What if a thief stole a checkbook and then forged the account holder's signature? In this case, the paying bank from which the money is withdrawn would be liable as they should know what their customers' signatures look like. What if the checks match exactly? How can a bank even recognize anything? This is an increasingly complex problem.
Berns, the magazine publisher in Chicago, has been involved in this waiting game before. “I appreciate that you are missing the stolen funds,” her BMO branch banker told her in an email last month, “but as discussed, BMO is unable to refund these funds to you while we work together.” Wait with the bank.” Financial institution where the fraudulent check was deposited.”
A BMO spokesperson reiterated that statement.
Ultimately, banks will return stolen funds to the vast majority of consumers, who have 30 to 60 days from the date of their last statement to report check fraud. But the wait can be frustrating. This varies depending on the institution, but some banks only grant their customers the loan after the claim has been decided, and others wait another 30 days afterwards. Banks are not required to complete their analysis within a specific period of time.
Despite the risks, people can't seem to stop writing checks. According to a 2022 survey by the Federal Reserve Bank of Atlanta, the typical American consumer wrote about 1.5 checks per month in 2022, accounting for about 3.8% of the total number of payments made in a month. In 2015, the typical consumer wrote 3.1 checks per month, which accounted for about 6% of the total number of payments made.
“There is still strong demand from consumers to use checks in some fairly common conditions,” said Kevin Foster, survey director at the Atlanta Fed, adding that people also tend to use them for transactions with higher dollar amounts. Some typical reasons: paying rent, the contractor, the government or charities. “I just don’t think they’re going away.”
Sheila McAllister found herself in check trouble at the end of the summer. She had recently recovered from a life-threatening reaction to a medication and finally felt strong enough to carry on with the mundane aspects of life – like making a bank transfer.
Her small community bank in New Jersey had limited online services, so she redirected all of her direct deposits — a few disability checks and a small pension — to an account she opened with Chase, where she also set up payment for her car bills. Processing the direct deposits took time, so she wrote a few checks from her old bank account to her new one so as not to miss large bills, including her rent and health insurance.
Two days after the remote deposit, she said the money still hadn't arrived in her account; Deposits are often “held” for a specific period of time, especially for new accounts. So she went with a dog walker and her two service dogs to a nearby branch in Westwood, New Jersey, to ask that the hold on one of her checks be lifted. They agreed – but McAllister said the branch employee accidentally re-deposited the check instead of clearing the hold.
“I thought because the mistake was made by a Chase employee, this issue would be resolved quickly,” said McAllister, 59, who lives with a chronic brain disease.
Soon after, McAllister noticed that her Chase account had been restricted – so she contacted the bank's escalation team, who informed her that she was under investigation for fraud. She was in disbelief.
But the bank's team seemed to have left out a crucial detail: They didn't accuse her of depositing the check twice; This problem has been solved. It was the next check McAllister had written to herself – from her old bank to the new one – that had been flagged because the handwriting looked suspicious.
But McAllister remained in the dark, she said, and her Chase account would soon be closed.
McAllister went ahead and tried to prove that the two deposits were an employee's mistake, making it her full-time job. She said she made about 40 calls to Chase, including one involving a three-way call with her former community bank.
“You should really listen to their recorded messages,” she said after learning what Chase found out.
Chase said the account was closed to avoid potential losses to the bank. “If we have concerns about a customer’s transactions, we act in accordance with our compliance program,” a spokesperson said, “in line with our regulatory obligations.”
Maintaining her account balance also became an ordeal as the Oct. 1 rent payment deadline approached. The money arrived four days before her rent was due.
“I felt like a mouse in a maze,” she said.
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