Check fraud, often referred to as "paperhanging," occurs when individuals intentionally write bad checks. While accidental mistakes can happen, repeated offenses are criminal.

In 2023, total check fraud attempts soared to approximately $18.5 billion. Successful fraud losses climbed to about $1.4 billion. However, U.S. banks continue to prevent over 90% of these attempts through early detection.

Types of Check Fraud

Check fraud involves various deliberate acts to defraud individuals, businesses, or institutions. Key types include:

1. Check Floating: Writing a check from an account with insufficient funds before it clears.
2. Check Forgery: Unauthorized signing or endorsing of checks.
3. Check Kiting: Moving funds between accounts to create the illusion of sufficient coverage.
4. Check Theft: Stealing and cashing legitimate checks.
5. Identity Theft: Opening accounts in someone else’s name to write fraudulent checks.
6. Counterfeiting: Creating fake checks with fraudulent intent.
7. Bank Checks/Money Orders: Forging bank checks or money orders.
8. Chemical Alteration: Tampering with checks to change their details.
9. Paperhanging: Writing checks from accounts without funds.

Historical Context

Check fraud has likely existed alongside the evolution of checks. Key milestones include:

• 321-185 BC: Merchants in ancient India used letters of credit, which were susceptible to forgery.
• 1118-1307 AD: The Knights Templar employed a check system vulnerable to fraud.
• 1717: The Bank of England introduced unique check paper for added security.
• 1959: Magnetic ink character recognition (MICR) improved check processing but also spurred new fraud methods.
• 2004: The Check Clearing for the 21st Century Act allowed electronic check imaging, increasing both security and potential fraud avenues.

Legal Penalties

Check fraud is prosecuted under state laws, classified as a misdemeanor or felony based on the amount involved. For instance, in Oregon, misdemeanor fraud can lead to fines up to $1,000 or one year in jail, while felony fraud can result in five years of imprisonment.

Conclusion

Check fraud remains a serious threat to consumers and businesses alike. While not covered by check guarantee companies, services like CrossCheck provide protection against returned checks due to accidental errors.

Benefits of CrossCheck's Services:

• Nationwide approval of checks.
• Complimentary account setup and staff training.
• 24/7 customer service and tech support.
• Optional enhancements for increased protection.
• Complimentary loaner equipment.

Download our free guide on Check Guarantee to learn how we can help your business increase sales and mitigate risk while saving time and money.