What Are Check Scams?
Check scams are a persuasive form of sweepstakes scam which can land the unwary victim into serious trouble, both legally and financially.
Check scams usually work like this: a victim receives a check in the mail along with congratulations on winning a large prize. The check is only a portion of the prize, to cover "taxes" or "service fees" or something similar.
The victim is instructed to deposit the check and to call a number on the letter for further instructions. Those instructions will include directions to wire the money back to the so-called sweepstakes sponsors.
Once the money has been wired, the victim discovers that the check is fraudulent. He or she is responsible for the amount of the fraudulent check, as well as the money wired to the scammers.
Click to see an example check scam letter.
For tips on how to recognize and avoid check scams, I contacted Maleka Ali, Risk Management Consultant for Banker's Toolbox. As a company that helps banks manage risk and streamline compliance examinations, Banker's Toolbox is keenly aware of the dangers that check scams pose. Here's what Maleka Ali had to say:
What can the legal consequences be from cashing fraudulent checks that scam victims receive in the mail?
A: Once the victim accepts the check for the scam and deposits it into their account, they become responsible for any losses. If the victim does not have enough money in the account the bank can file litigation against the victim for any money owed to the bank. They can report the victim to reporting agencies such as ChexSystems, which will then make it difficult for them to open an account at another financial institution, and they might even face jail time.
What can the financial consequences of check scams be?
A: Typically the check is deposited into the victim's account and they are then asked to wire or transfer (via Western Union or Money gram) overseas proceeds to cover miscellaneous processing or attorney fees related to the win. Once the check is returned as counterfeit, the bank may immediately charge the victim for the amount of the counterfeit check along with bank return fees. If the bank files litigation or if the victim faces any other potential criminal charges as a result, they might even have to fork out more money to pay for attorney fees.
If you are not sure whether a check is fraudulent, what steps should you take before cashing it?
A: Look up the business or individual listed as the maker of the check. Do not call the number listed on the check - this is typically a number that will call someone who is in on the scam. Call the Bank that the check is drawn on to verify that the account number is valid and that the name on the account matches the name on the check. Often they will use a valid bank with a valid account number but they will substitute a different name as the maker of the check.
See if they will verify if the funds are in the account. Use caution however; just because there is money in the account does not mean that the maker of the account actually issued the check.
The most cautious scenario would be for you to instruct your bank to send the check for "Collection" to the maker's bank. They will physically send the check to the maker bank on a collection basis, collect the funds for you and then deposit the funds into your account once received by the foreign financial institution. This might take anywhere from 10 days to 3 weeks; however, once the funds are deposited into your account you know they are good funds.
What are some of the top signs that a check is fraudulent?
A: Legitimate sweepstakes will never require you to send money to cover any fees or processing. If they are pressuring you with a deadline (which is usually very short) that is also sign that the sweepstakes and the check are fraudulent. Did you even enter the lottery or sweepstakes? If you didn't, then it's fraudulent. If you received notification from an email, was the email address something like Yahoo or Hotmail? Were there grammatical errors in the letter or email notifying you of your win?
Most often the check will look legitimate. The maker and the Bank listed on the check might also be legitimate, but this does not mean that they actually issued that check. This information should be confirmed.
Also confirm that the bank routing number (or other identification number) listed on the bottom the check is the valid bank identification number. For example they might list Bank of America as the name but list Wells Fargo's identification number on the bottom of the check. This is to delay the processing of the check to give them even more time to get away with the scam.
What steps are banks taking to protect their customers from check scams?
A: When a customer deposits a check, the bank tellers are merely processing the checks and most often are not validating whether the check is legitimate.
Depending on the customer's relationship and history with their financial institution, the bank will often not even place a hold on the funds. Even if a hold is placed because of federal and sometimes state restrictions, the hold will usually be placed for no more than 5-10 days; however it can sometimes take several weeks for the fraudulent check to be returned, especially if the check is drawn on a bank overseas.
Many banks will publish consumer alerts, via brochures, online messages on their web pages or with lobby signs alerting their customers of the dangers of get rich or identity theft scams.
Thank you, Maleka Ali!
Conclusion: If you receive a check in the mail, don't just deposit it and hope that it goes through. Even if you don't wire the money that the scammers request, you could be in serious legal and financial trouble just for depositing the check. If you have doubts, speak with your bank manager about how to verify that the check you received is legitimate. And be sure to brush up on the warning signs of sweepstakes scams to recognize check scams more easily.