Writing checks might seem old fashioned but counterfeiting them is the latest trend in the world of low-level financial crime. According to the US Treasury Department, reports of check fraud have spiked in recent years, climbing by 23 percent in 2021 and a whopping 95 percent in 2022.
Kurt Davis, a Roxbury resident, is one of the victims of this wave of check fraud. He recently told NBC10 Boston that he sent a birthday card in the mail along with a $50 check to someone in Texas last fall. But it was never delivered. When he went to his bank to see if the check had been cashed, he found out that someone had, in fact, deposited it at an ATM in Braintree. What was even more shocking was the amount withdrawn from his account: It wasn’t the original $50 he wrote out; it was $15,822.
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What happened to Davis is probably a case of “check washing.” That’s when criminals steal genuine checks, usually from the mail, doctor them to change the names of payees (and sometimes the dollar amount), and deposit them into bank accounts belonging to often untraceable fake identities. Victims like Davis are then left having to navigate their banks’ procedures for reporting check fraud, and it can take months for them to actually get their money back. Davis, for example, filed a claim in the fall and is still waiting for his bank to complete the investigation. And if victims don’t notice and report the fraud within a certain time frame — which varies state to state — they might never get a refund.
Ironically, the word check, according to linguists, originated from the idea that it would act as a “check” against forgery. But check fraud may perhaps be as ancient as checks themselves, and its resurgence should concern both financial institutions and regulators, especially because people who still rely on using checks — and therefore risk having them stolen and washed — are more likely to be older and low-income.
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One of the best ways to stymie this type of fraud is for banks to improve their due diligence when people open up new depository accounts. At the end of the day, the money from check washing schemes ends up being deposited somewhere, and that’s often bank accounts that are opened up under fake identities. Banks are typically very careful when people apply for a line of credit — in part because it’s the banks’ money that’s on the hook in the event of any fraud — but they are sometimes less careful when people apply to open a checking or savings account.
That’s the concern that some small banks have raised about big banks and whether or not they’re complying with due diligence regulations. The Community Bankers Association of Illinois, for example, has asked federal regulators to crack down on large banks that show a pattern of lax check fraud controls.
That’s exactly what the federal government has to do. Banks have to be held to a higher standard. When they are held financially responsible for fraud that happens under their watch, they will improve their due diligence and, in turn, crack down on accounts that are used to make financial scams like check fraud possible in the first place. There are two ways that the Biden administration can push banks to be more responsible.
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The first is to more aggressively enforce current regulations and make examples out of banks that tend to look the other way when it comes to fraudulent accounts. Under the Obama administration, the Department of Justice launched an initiative to combat consumer fraud by holding financial institutions accountable for facilitating fraudsters’ schemes, whether wittingly or not. The initiative, which drew ire from Republicans, was later scrapped under the Trump administration, but no such operation has been reinstated since President Biden took office.
The second is to go even further than already-existing consumer protection regulations. Last summer, The Wall Street Journal reported that the Consumer Financial Protection Bureau was preparing to release new guidance that would have heightened requirements for banks to refund customers who fall prey to scams on wire transfer services like Venmo or Zelle. But the CFPB’s plan has yet to come to fruition. To be sure, those regulations wouldn’t apply to issues like check washing — banks are already obligated to refund customers for that type of fraud — because they’re focused on transactions that customers have technically authorized, having not known that they were paying a scammer. But that kind of stricter regulation would raise the bar in a way that would encourage banks and money services to be more careful when approving all types of transactions, adding another layer of security to their customers’ accounts.
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Lastly, banks shouldn’t wait for regulators to protect customers against fraud. One step that banks can take on their own is to create better notification systems that keep customers up to date on their transactions — and check withdrawals in particular — so that they can quickly notice if anything improper is going on. Some banks already have apps that send notifications to people’s phones or e-mails but customers generally have to opt in. Making customers aware of those services should be a priority.
The fact that check fraud has resurged at a time when use of checks has declined indicates that there are weak points in the financial system that make it relatively easy for fraudsters to run these kinds of schemes. And that’s ultimately a failure that must be addressed by banks and regulators.
Editorials represent the views of the Boston Globe Editorial Board. Follow us on Twitter at @GlobeOpinion.
