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Who Can Afford Check Fraud?
An acquaintance runs a small business with her husband in Nashville, Tennessee. She was shocked to learn recently that their business’ checks had been forged, and the criminals had written a bunch of fat checks from the couple's operating account.
When she went to the bank to report the fraud, the banker on the phone, who represented an institution with more than $500 billion in assets, balked at reimbursing the funds. “We can’t afford this,” the banker said.
My acquaintance didn’t feel like they could afford it, either. Eventually, the bank concluded an investigation and reimbursed the couple for the losses. Still, unnerved by the experience, they took their banking elsewhere.
Check fraud has been on the rise, despite fewer Americans writing checks these days. Customers aren’t the only ones feeling stressed. More than 90% of the 471 bankers responding to this week's IntraFi’s survey said check fraud rose in the past two to three years. More than one-quarter reported check fraud was up more than 50%.
That has real costs. The 2023 Federal Reserve Financial Services Financial Institution Risk Officer Survey found that check fraud represented 31% of fraud losses in the prior 12 months, second only to debit card fraud at 35%.
Not only that, banks are struggling to get reimbursed. The business of checking has a responsibility matrix that depends on the type of fraud involved. Sometimes the depositor bank is on the hook for the fraud. Sometimes, the bank that issued the checks is, says Sam Truitt, senior analyst for financial crimes at Jack Henry & Associates. But in IntraFi’s survey, 49% reported delays were common in repayments for bad checks, with most of those naming megabanks as the most likely to cause difficulties in repayment.
Whoever is at fault, pointing fingers isn’t going to solve this problem. The industry needs better tracking and enforcement mechanisms instead.
• Naomi Snyder, editor-in-chief for Bank Director
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