The Federal Reserve System (Federal Reserve) recognizes that check fraud is a top concern of bankers.1 Banks can suffer a financial loss when they clear a check drawn on another bank but later find that the check is fraudulent. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has noted that there have been significant increases in suspicious activity reports on possible check fraud since 2021.2 While the Federal Reserve actively monitors trends in check fraud, it generally does not intervene in fraud disputes between banks, including banks over which it may not be the primary federal banking regulator. The Federal Reserve is sharing these resources and sound practices to help financial institutions respond to check fraud.
- Federal Reserve
- Consumer Compliance Outlook (CCO). In 2018, CCO published an article titled “Responding to Counterfeit Instrument Scams.”3 This article identifies common schemes involving counterfeit instruments and sound practices to mitigate risk.
- Contact Us link. Financial institutions can communicate their concerns about check fraud and other issues to the Federal Reserve Board using this link. If a bank chooses to report a fraud incident, the notice should provide full details in the comments section at the bottom of the online form, without including any personally identifiable information. Board staff will review the information received, which may include sharing it within the Federal Reserve System and with the other banking agencies.
- Interbank Payment Fraud Complaints mailbox. The Federal Reserve has established a new mailbox (Interbank-Payment-Fraud-Complaints@frb.gov) to receive interbank payment fraud complaints involving any of its supervised institutions. While the Federal Reserve does not resolve matters between financial institutions, it will direct the complaint to the appropriate staff at the Federal Reserve–supervised financial institution referenced in the complaint. A list of commercial banks supervised by the Federal Reserve can be found at www.federalreserve.gov/supervisionreg/state-member-banks-supervised-federal-reserve.htm.
- Consumer Compliance Outlook (CCO). In 2018, CCO published an article titled “Responding to Counterfeit Instrument Scams.”3 This article identifies common schemes involving counterfeit instruments and sound practices to mitigate risk.
- FinCEN. On February 27, 2023, FinCEN issued an alert4 to inform financial institutions about the surge in check fraud. This alert provides red flag indicators to assist financial institutions in meeting their Bank Secrecy Act obligation to identify and report suspicious activity. It emphasizes that information sharing among financial institutions is critical to identifying, reporting, and preventing mail theft-related check fraud. The alert strongly encourages financial institutions to share information under the safe harbor authorized by Section 314(b) of the USA PATRIOT Act; refer to FinCEN’s Section 314(b) page for additional information.
- U.S. Postal Inspection Service (USPIS). The USPIS has published Tips & Prevention on scams in general, an information page on check fraud, and a brochure that financial institutions can provide to their customers, titled “Don’t Be a Victim of a Check Scam.” It also provides forms for individuals to report fraud.
- The American Bankers Association (ABA). The ABA’s Check Fraud Claim Directory provides a searchable database of contact information for banks needing to file a check warranty breach claim with another financial institution. To access the directory, a bank must participate by providing its fraud contacts but does not need to be an ABA member.
- Check Service Providers. Check service providers may offer products and services designed to mitigate check fraud, such as duplicate detect and positive pay products that can aid a bank in detecting a duplicate check presentation or accelerated collection. Many checks even have built-in security features such as microprinting, watermarks, and holograms. Such services and features may help financial institutions detect problems earlier in the check collection process. Financial institutions can contact their provider about whether these services are offered.
ENDNOTES
* A previous version of this article was published in Consumer Compliance Outlook.
1 The Federal Reserve Board’s Regulation CC (12 C.F.R. 229) governs the availability of funds deposited in checking accounts and the collection and return of checks. For more information, see the Reg CC compliance guide, available at www.federalreserve.gov/supervisionreg/guide-regulation-cc-compliance.htm.
2 See FinCEN’s September 9, 2024, press release regarding check fraud related to mail theft, available at www.fincen.gov/news/news-releases/fincen-issues-depth-analysis-check-fraud-related-mail-theft, and FIN-2023-Alert003, the FinCEN Alert on Nationwide Surge in Mail Theft-Related Check Fraud Schemes Targeting the U.S. Mail, February 27, 2023, available at www.fincen.gov/sites/default/files/shared/FinCEN%20Alert%20Mail%20Theft-Related%20Check%20Fraud%20FINAL%20508.pdf.
3 See Kenneth J. Benton, “Responding to Counterfeit Instrument Scams,” First Issue 2018 Consumer Compliance Outlook.
4 See FIN-2023-Alert003.