Background checks are commonplace for job seekers — about 92% of companies perform them, according to the Society for Human Resources Management. But even a background check can sometimes turn up incorrect information, or even worse, miss some important details about a candidate’s past. A San Diego woman recently discovered that her background check contained three criminal charges from 2014 — and they didn’t belong to her. Luckily, an FBI fingerprint check done by the background check company was able to verify that the charges were not hers. While background check errors rarely make the news, there’s another type of check that has been in the headlines for a while now. In 2021, financial institutions reported more than 350K cases of suspected check fraud, according to the Financial Crimes Enforcement Network (FinCEN). In 2022, the upward trend continued, with 680K suspicious activity reports related to check fraud. Thieves are interested in just about every kind of check: personal, business, tax refunds, Social Security, unemployment, and other kinds of government assistance. They change the name of the payee and deposit the stolen money in their own accounts or try to deposit the same check in accounts at multiple banks. Some crooks ratchet up their game and also steal personal details from checks and any paperwork that arrived with them, to sell or use to commit identity theft. The average size of a stolen check isn’t huge; the Federal Reserve says that the average commercial check was for $2,685 in 2023. However, check fraud really adds up. In 2023, check fraud was worth an estimated $24B. Check Fraud and Business CustomersConsumers aren’t the only group being impacted by check fraud. Businesses are feeling the pain as well, and much more commonly than one might think. According to the Association of Financial Professionals’ annual Payments Fraud and Control Survey Report released this spring, 65% of businesses were hit with check fraud last year, up from 63% in 2022. Around 75% of survey participants said that they still use checks for at least some payments, and 34% stated that they make more than a quarter of payments using checks. Many of those payments are probably between businesses. Nearly 21% of B2B real estate transactions involve checks and 76% of subcontractors rely on checks as the way they get paid. Checks account for 15.2% of B2B payments for retailers, too. What To Do About Check FraudBecause they often know their customers, community financial institutions (CFIs) are in a good position to help combat check fraud. CFIs and other financial institutions have also banded together through various industry groups, such as Nacha, that maintain directories so financial industry players can more easily talk to each other. ICBA launched a task force in March 2024 where representatives from more than 30 financial institutions and bankers’ associations work on finding ways to combat the problem. The ICBA also leads an anti-fraud working group and offers members education on how to deal with check fraud. Perhaps the most effective strategy that CFIs can encourage to prevent check fraud, however, is to advise customers to write and accept fewer checks. Participation in electronic payment methods, including ACH, wire transfers, credit/debit cards, online banking, and mobile payment apps like Venmo, Zelle, and PayPal, as well as real-time payment rails like the FedNow® Service, is steadily reducing the use of checks. CFIs can help speed that process along by:
- Participating in instant payment rails like FedNow. Developed by the Federal Reserve, the FedNow Service is an instant payment framework that’s open every day and hour of the year and gives accountholders real-time access to their money. Through FedNow, financial institutions can offer their customers the convenience of real-time payments, which helps reduce the reliance on checks and minimizes the risk of check fraud. This Wednesday, we’ll dive into just how safe FedNow payments are when it comes to fraud.
- Keeping an eye on check-writing trends. Around 94% of mid-market companies are planning to stop using checks during the next 5Ys, according to a Citizens Bank survey of 202 treasury executives at firms with annual revenue between $50MM and $1B. The number of checks being written is gradually dwindling and financial institutions are keen to invest in technology, including artificial intelligence (AI) and fintech partnerships. Don’t lose track of the real problem that check fraud still represents.
- Encouraging business customers to adopt digital payments. Talk to commercial clients about check fraud and encourage them to use and accept electronic payments. Remind them of the enhanced accuracy and bookkeeping efficiencies that electronic payments make possible. Keep ACH fees low enough to make electronic payments a viable alternative to checks. Point out that because business accounts are often well-funded and have a lot of transactions, companies often don’t notice check fraud before a thief has the opportunity to do a lot of damage — and that this is one reason that business checks are popular with fraudsters. Digital payments go through different processes and systems that can make the movement of funds more transparent and easier to manage.
Americans are writing fewer checks, gradually abandoning them in favor of electric payment systems. But there are still enough checks out there to make check fraud a popular and lucrative financial crime. CFIs can help combat check fraud by participating in digital payment rails, investing in fraud prevention, and encouraging customers — especially business customers — to write fewer checks.
