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Criminals Make Auto Dealer Prioritize Check Acceptance Policies

Posted by Tom Lombardo | Sat, Sep 26, 2015 @ 07:00 AM

In 2012, a Chicago area man plead guilty to writing twenty-four worthless checks to auto dealerships, including ones in Illinois and Wisconsin that lost over $70,000. And he's at it again. 

Auto dealers lose big from Chicago area check fraud artist.

In a recent email, the Chicago Automobile Trade Association alerted its members to the man's activities, and encouraged them to review their check acceptance policies with employees.

That's always good advice, especially since dealerships routinely accept four- or five-figure checks and often release vehicles based upon them. A check acceptance policy can reduce the incidence of fraud, but since few precautionary measures are guaranteed to work 100% of the time, some checks will inevitably be returned. Dealerships need to have collections policies in place to handle that, too.

Let's start with the check acceptance policy. You're free to take this and use it as your own:

Auto Dealership Check Acceptance Policy

Each check MUST HAVE these features:

  1. It must be drawn on a local or in-state bank.
  2. The bank's logo must be printed on it.
  3. When you hold it up to the light you can see a watermark or other security features.
  4. It must have a padlock icon on the front and a security message including the words "ORIGINAL DOCUMENT" on the back.
  5. It must have a MICR line, which is written in a unique font across the bottom of the check, showing the bank's routing number, the account number, and the check number.
  6. The check number in the upper right corner and the check number in the MICR line must match
  7. It must be for the exact amount owed.
  8. The customer's name and complete address must be printed on it.
  9. The check must have the proper date on it.
  10. The check must be made out to the correct payee.
  11. The dollar amount written in digits must match the dollar amount written in words.
  12. The signature must be written while you watch.

Each check MUST NOT HAVE these features:

  1. Smooth edges; either the top or left edge should be perforated.
  2. Regular paper feel; checks are printed on special paper.
  3. A blurry, mis-aligned or missing bank logo.
  4. A blurry or smudged MICR line.
  5. A signature you didn't see produced.
Follow this procedure:
  1. Watch the customer write the check, including their signature.
  2. Get their state-issued photo identification card, such as a driver's license.
  3. Make sure the photo on the ID is the person writing the check.
  4. Make sure the signature on the ID matches the signature on the check.

Be sure to review this policy with your employees, because you will find that it will prevent a majority of check fraud attempts.

Prepare for Inevitable Collections

But it won't prevent all of them. The Chicago fraudster's check would have passed this test because he used legitimate checks from what had once been a legitimate bank account.

So you ought to prepare to collect the inevitable returned check. The laws controlling how you can legally go about doing that are extensive. At the Federal level, a good starting point would be a thorough understanding of the Fair Debt Collection Practices Act, but please be hyper-aware that this is just your starting point. At the state level, laws and regulations vary, and you'll need to do your own research to be confident that you correctly comply with all of them.

Penalties for non-compliance can be onerous. They begin with monetary damages for physical and emotional distress, lost wages, and statutory penalties. They go up from there, and attorney's fees may add significantly to the burden. You may be sued by the debtor, by the debtor's receptionist, by his family and even by his neighbors if you violate any of of the laws governing collections procedures.

The Outsourcing Option

Many dealerships choose to minimize the incidence of check fraud in the first place by having us verify a check before accepting it. It's almost certain that the Chicago fraudster's check would have failed if it had been run through our service because we probably would have found out that his checking account didn't exist. We would also probably have discovered that the fraudster had a criminal record for kiting or paperhanging checks.

We say "probably" because even with our proprietary databases and time-tested methods some bad checks still get through. And while it's true that precautionary measures can't work 100% of the time, it's also true that this doesn't have to affect your business. With our check guarantee service in place we'll analyze the check for you, in accordance with your Service Agreement, and if we guarantee it you will be 100% certain that you'll get paid and that you won't have to deal with collecting on it. If a guaranteed check is returned, we pay you anyway and then we deal with the problem.

After thirty-two years serving auto dealerships just like yours, we've created a suite of services tailored to auto dealerships that can drive revenue and mitigate risk on your showroom floor, in your service bays and in your parts department. Find out more here.

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Topics: Check Fraud, Auto Dealerships, C.A.R.S.

Written by Tom Lombardo