What are Some Different Kinds of Check Fraud?

Check fraud is a headache for banks. As long as a check exists for one day, there is a possibility of cheating fraud. Cheque fraud is a general term. There are many ways to defraud, such as changing the name of the payee, changing the amount of the check, or forging a signature or endorsement, or issuing a check without authorization from the owner and many more. According to a statistics from the American Bankers Association in 1994, an estimated 1.3 million cheating fraud cases occurred in the United States in 1993, with an average fraud amount of about $ 1,000 each, and losses to banks amounted to $ 815 million. A survey by the US Federal Reserve showed that 60% of commercial banks and credit savings associations suffered losses due to cheque fraud in 1995, with losses of about $ 600 million.

Check fraud

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Check fraud is a headache for banks. As long as a check exists for one day, there is a possibility of cheating fraud. Cheque fraud is a general term. There are many ways to defraud, such as changing the name of the payee, changing the amount of the check, or forging a signature or endorsement, or issuing a check without authorization from the owner and many more. According to a statistics from the American Bankers Association in 1994, an estimated 1.3 million cheating fraud cases occurred in the United States in 1993, with an average fraud amount of about $ 1,000 each, and losses to banks amounted to $ 815 million. A survey by the US Federal Reserve showed that 60% of commercial banks and credit savings associations suffered losses due to cheque fraud in 1995, with losses of about $ 600 million.

Chinese name

Check fraud

Foreign name

Check fraud

There are many reasons for cheating fraud, such as the use of new computer equipment and software, the widespread use of laser printers, scanners and photocopiers, making forged checks easier, organized activities by criminal groups, increasing competition among banks, and banks Internal system weakness has contributed to the rampant cheating fraud to varying degrees. There are also legal reasons. To this end, banks, regulators and other interested parties have proposed measures to control and prevent cheque fraud from different angles.

1. Extend the "hold period"

The consumer issues a check to pay for the goods. After the merchant accepts the check, he usually sends the check to his own bank (known as the reminder bank or collection bank, depository bank or collecting bank), and the reminder bank will use the same city or off-site collection system to send the check. The check is handed to the consumer's bank (that is, the paying bank), and the paying bank checks. If the check is true, the payment is made. If the check is false, the check is returned to the prompting bank and the payment is refused. It takes a certain amount of time to settle the check between the two banks. It is shorter in the same city and longer in different places. The merchant handed the cheque to his own bank, and always wanted to get paid as soon as possible. In order to protect the interests of the merchant and the user of the cheque, the U.S. tincture would be penalized. (Xpedited Funds Availability Act) and implemented the Regulation CC. The core purpose of the law and implementing regulations is to protect consumers so that the bank will pay the corresponding amount to the person who prompts the check payment within the prescribed time.

Specifically, the law places a time limit on prompting bank payments. It requires: (1) When the payer issued on the check is a national treasury, a federal reserve bank, a federal residential loan bank, state government, or local government agency, and the check is sent by the holder to the presenting bank in person, The presenting bank must prepare the funds within 2 days so that the customer can withdraw cash at any time; (2) if it is a general local check, the presenting bank must prepare the funds within 3 days so that the customer can withdraw cash; (3) if the check is offsite, present The bank must prepare the funds within 6 days for the client to withdraw cash. These restrictions obviously increase the liability of the presenting bank, because within such a short period of time, the presenting bank is likely to be still settling with the paying bank, and it may not be clear whether the paying bank will pay. Sometimes, the reminder bank paid the customer in accordance with the law, and after a period of time, the original check may be returned to the payment bank.

For the sake of balance, the law also makes provisions that are conducive to prompting. For example, in the case of possible fraud, the prompting bank may extend the payment period. These situations include the holder opening an account for less than 30 days, the check amount exceeding $ 5,000, or the checking account often has overdrafts, etc .; , Requiring the payment bank to process the refund promptly, the local check must be returned within 2 days after the bill is presented to the payment bank, and the off-site check must be returned within 4 days.

These are some mandatory time limits that banks must adhere to. However, this also provides the conditions for cheating fraud. As long as the person conducting the fraud knows that the reminder bank may have to pay within the legal time before the check is returned by the paying bank, there may be cheating fraud. According to US Federal Reserve statistics, as far as commercial banks are concerned, only 48% of local checks are returned by the paying bank within the statutory payment time, that is, 52% of local checks are likely to be fraudulent. As for savings banks, With the Credit Association, only 17% and 25% of local checks are returned by the payment bank within the legal time, which is more likely to be fraudulent. And in the entire cheque fraud, local cheque fraud accounted for 72% of the fraud amount; 50% of the loss was directed to the prompting bank. In order to reduce fraud losses due to statutory deadlines, the US Federal Reserve made a proposal to extend the statutory deadlines by one day. It is estimated that an extension of one day means that 80% of local checks can be returned to the paying bank before the prompting bank pays on the legal date, that is, the prompting bank receives payment from the paying bank before paying the customer.

Second, first order, then pay (positive pay)

Paying the bill first, then paying is the current method adopted by many American banks to prevent cheating fraud, and it is a new way developed with the help of electronics. The operation of this method is as follows: after issuing each check, the customer sends some information about these checks to the paying bank (that is, his own bank) by computer, telephone, or other electronic means to form an issued check. List. The payment bank has an automatic "first order, then payment" system. This system automatically checks the cheque prompting payment against the list sent by the customer every day. If the check being prompted to pay is on this list, the bank will automatically pay; if it is not on the list, the paying bank will list this check as a "problematic check" and ask the customer for instructions on whether to pay.

The American Bankers Association report shows that approximately 2% of community banks (with assets under $ 500 million), 6.5% of medium-sized banks (with assets of between $ 500 million and $ 5 billion), and 54.5% of large banks (Assets above $ 50) are provided to the company's customers "first order, then payment" service. Whether the approach adopted by the bank is effective and how effective depends on how much information is exchanged between the bank and the customer. In other words, if the paying bank finds the check in question, it simply tells the customer the check number and the amount of the check (by electronic means), and the customer did issue such a check, then it must be Payment will be instructed, but if the amount and number of the check are correct, but the signature or the payee's name is forged, the customer will not be able to detect cheque fraud. Such situations often occur, such as the customer's internal staff forging a signature or Payee name is a more common method of cheating fraud.

The amount of information exchanged between the payment bank and the customer determines the effectiveness of the "first order, then payment" method, and the information that the payment bank tells the customer depends on the information it receives, that is, it depends on the information it receives from the bank. Get information about checks. In the past, the bank's customary practice is that the deposit bills sent by the bank to the depositor every month are accompanied by a check issued by the depositor and cancelled by the bank payment. But in order to increase the speed of settlement, a method called "truncation" has been adopted. After the payee handed the check to the prompting bank, the prompting bank originally needed to hand over the actual check to the paying bank for collection, but now it is different after adopting the hold-off system, prompting the bank to no longer send the check to the paying bank through the clearing agency. Instead, the payment bank will be notified to the payment bank via an electronic computer, requesting the payment bank to pay. The paying bank then debits the checker's deposit account based on the electronic information. The actual check remains in the hands of the prompting bank, and the paying bank obtains information about the check from the prompting bank.

Depending on the technical means, the check information obtained by the paying bank may be simple or comprehensive. What is usually used today is the number and amount of the check to be transmitted. The payment bank only knows these two pieces of information, and it only informs the customer of these two pieces of information. As far as the bill law is concerned, the holder entrusted to prompt the bank to collect the money. There should be a proxy relationship between them, prompting the bank to prompt the payment bank to pay. Does this "electronic prompt" approach now count as a reminder? The law for adjusting checks in the United States is mainly Articles 3 and 4 of the Uniform Commercial Code. According to traditional law, electronic prompts obviously cannot be called prompts. However, in 1990, the United States revised the Uniform Commercial Code. In the definition of cheque reminders in Section 3-501, electronic reminders are also considered as effective reminders as long as there is an agreement between the parties. In addition, Section 4-110 expressly authorizes the parties to conclude such an agreement. Therefore, the legality of the electronic reminder was confirmed.

However, as mentioned above, although the legality of the electronic reminder has been confirmed, it cannot guarantee security, because the information obtained by the customer during verification may not be sufficient. For this reason, some banks have adopted more advanced technology and adopted the practice of "copying check images". In other words, all the information of the check is made into a digital image, prompting the bank to send the image of the entire check to the payment bank, and the payment bank also transmits the image of the entire check to the customer, so that not only the number and amount of the check, You can also see information such as signatures and payer names. The security has been greatly improved, and its legality has also been confirmed by the Uniform Commercial Code. However, the disadvantage is that the cost is high, and ordinary banks may not have the financial resources to adopt such technology. However, with the development of technology, the practice of "check image" will sooner or later become popular. In the transitional period, in order to prevent fraud, banks generally adopt a comprehensive check on some cheques in question, and check simple information with no problems to reduce the occurrence of fraud.

Third, electronic checks

The operation of electronic cheques has been introduced to you in the 14th issue of Financial Law Court, "Online Banking Payments (II)-Legal Issues of Electronic Cheques", and will not be described in detail here.

4. New clearing house rules and advanced technical measures

According to the United States Uniform Commercial Code, if a third party issues cheques in the name of a customer without authorization, in this form of fraud, the resulting losses are generally borne by the paying bank. However, some clearing houses in the United States believe that this method of sharing responsibilities is not scientific and have modified some of their own rules. For example, in 1996, the Southwest Clearing House Association issued a new rule requiring banks to be guaranteed that there is no unauthorized signature on the cheque, which means that the cheque was not forged or counterfeit. If such a cheque appears, it is considered In violation of the prompt bank's own guarantee, the real owner of the checking account only needs to issue a forged oath certificate to prove that the check was issued without its authorization, and the check can be returned to the payment bank. The payment bank will then return the check to the prompt bank . Back in 1995, the California Association of Bankers and Clearing Houses made similar rules. At the same time, in 1996, the California Uniform Commercial Code was amended accordingly to reflect the changes in the above-mentioned liquidation rules. These measures to modify the rules all believe that compared with the paying bank, it prompts the bank to find cheque fraud more easily, and therefore should bear greater review responsibility.

In terms of technology, banks use fingerprints and other technical measures extensively. When a customer submits a check to a bank for payment, the bank requires those customers who do not have a deposit account to leave their fingerprints. If cheque fraud is discovered afterwards, the check is handed over to the relevant authorities for investigation. The fingerprint on the check can be used as an investigation. Clues and evidence. Fingerprinting methods greatly reduce cheating fraud, as those who engage in fraud are generally afraid to leave any evidence behind. According to statistics, in Texas, the use of fingerprint technology has reduced check fraud by 50%, and during the trial period in Nevada and Alabama, check fraud decreased by 40%-80%. After Great Western Bank implemented fingerprint technology, check fraud fell by 40% in 1997.

There are also many other technical means. For example, the First Union Bank of Connecticut in Connecticut uses ATM camera technology to measure information about the human face, such as the distance between the eyes and the distance from the tip of the nose to the forehead. Distance; Citybank is also investigating and preparing to implement eye scanning technology, especially iris scanning. Some other banks also use voice recognition technology, etc. All these technologies can also be used to prevent cheque fraud. In addition, some banks have also developed anti-short check software, or prevented the occurrence of cheating fraud through other electronic means.

(Author: Peking University Financial Law Research Center)