Fact Sheet 126
Checking Account Takeover and Check Fraud

This guide includes:

• Victim Response Tips
• Summary of Check 21- the new federal law about checking accounts
• Reduce Your Risk
• Resources
• Letter Forms

It is our fervent hope that you are reading this guide as a consumer information sheet and not as a victim.  If you are a consumer and we have not convinced you by the end of this sheet to consider keeping your checkbook and deposit slips at home, shredding old checks, using them wisely, sending and receiving mail in a secure manner, and placing password protections on all accounts, we have not adequately done our job. 

If you are a victim, this is not an easy process, but one that you will survive by staying on top of things, keeping highly organized and following the advice below.

Identity theft is limited to a thief’s creativity, brazenness and skill.  Unfortunately identity theft related to checking accounts is a nightmare that truly keeps on taking.  There are many forms of check fraud:

1. Check theft - when the thief uses existing checks that they have stolen from you

2. Check washing - when a thief takes an existing check and chemically washes the name of the recipient and amount from the check, altering it.

3. Checking account takeover - when a thief adds his/her information to your account or changes the mailing address or makes other alterations to your account for unlimited access

4. Check counterfeiting - when a thief takes blank check stock and creates additional checks that mirror your true account.  This information appears at the bottom of every check and deposit slip you have.  It doesn’t matter if the account is open, closed, or has enough funds in it. 

5. Check synthesizing - your name and address appears on a check for an account that you never opened, perhaps at a bank you don’t use, and in fact might never have been a real account at all

Check fraud is probably the most misunderstood type of identity theft crime.  It is truly a crime of the computer generation.  Anyone can create a check.  And unfortunately, unlike credit cards, to date there are no universal programs that merchants can run a check through to verify if it is authentic and belongs to the person who is cashing it.  One of the great misconceptions that consumers have is about scanners.  Many people believe that the scanners used in stores connect to a master computer.  That is not true.  They only tell the clerk if you owe money to that particular store or to the group of stores using the same system. 

This lack of a universal check clearance system is the loophole check fraud artists take advantage of.  Merchants don’t know that the check has been stolen, or that it is part of an account you closed years ago but dumped in a trashcan, or has been counterfeited or synthesized.  Essentially, they are as much a victim of this crime as you are.  And if they are a small business, that loss may be very significant.

As in most jobs, the thieves get better at this crime the longer they work at it. 

Checking account fraud can go on for years, until the criminal tires of the game or is caught.  That’s the Bad News.

VICTIM RESPONSE:
These tips are for everyone, no matter what type of case it is. 

• Organization of your case is important.  See Fact Sheet 106 Organizing Your Case for more information on this topic.
  
• With any check fraud, you should report the crime to the police as soon as it is discovered, get a copy of that report and send the photocopy of the report with any initial correspondence with a merchant or financial institution.
  
• All requests should be made in writing and in a timely manner.  All mail should be sent “certified, return receipt requested.”
  
• Whenever possible speak with the fraud investigation department and not customer service or bank managers.
  
• Regarding passwords - a password should not be a mother’s maiden name.  If the bank insists on a mother’s maiden name then make one up.  A strong password should be more than 8 characters in length, and contain both capital letters and at least one numeric or other non alphabetical character.  Use of non-dictionary words is also advised.
  
• Warrants - It is possible that a criminal warrant will be filed for a bad check, usually several hundred dollars or more.  Once you make contact with the merchant or financial institution, ask if they have referred this to the police, a county prosecutor or the district attorney’s office (sometimes called the “bad check division”).  If so, contact that prosecutor and request that they withdraw that warrant.  You will need to provide a copy of the police report to the prosecutors office so that the warrant can be cleared.  Make sure you receive a letter stating that the warrant has been withdrawn/cleared, and that your name is not in the system.  Your name needs to be cleared from the local level database, state level database and national level database (if placed there).  You can call the “Court Clerk” in the county where the check was passed to find out if a warrant exists in your name.
  
• Contact all the Check Verifications companies listed below.  Some do place fraud alerts on your report and some will even provide a consumer report similar to your credit report.  If a check is denied, ask the merchant which Check Verification company they use so you know where to start.  You do have the right to have erroneous or fraudulent information removed from the report, upon written request and with proof, which might be a police report or a collaborating letter from a bank.
  
• A new federal program called CHECK 21, outlined below, has changed the banking industry tremendously.  If you get copies of your checks each month on a single page, this is called an “image statement.” It is not the same as a “substitute check” and may not carry the same legal rights.
  
• Under Check 21 different kinds of copies of a check will have different rights attached.  Check 21 creates a paper copy of an electronic image of a check.  One type of copy is called a substitute check, which will be a photocopy of both the front and back of your check.  Only this substitute check can be the legal equivalent of the original check. A substitute check is required if you want the right to recredit of the disputed funds.  A regular copy of a check does not carry these same protections.  If you ask for a copy of a check, your bank may send you an ordinary copy instead of a substitute check and that alters your legal rights and protections.  Always request a substitute check.
  
• Finally, it is CRITICAL that you carefully look at each bank statement when you receive it to check for check fraud.  Most financial institutions will only accept fraud claims 30-60 days after a statement has been mailed (found in the notices on the back of each billing statement).  Any discrepancy you find should be immediately reported.  You will find it is nearly impossible to correct problems that predate that period.  Find out what telephone number to use for your bank should you ever have a problem and keep it in a safe location.

Each type of check fraud requires a slightly different response from you and has different pitfalls. 

1. Check theft-

• Contact your bank both orally and in writing, immediately cancel this checking account and any connecting financial accounts, credit cards or debit cards. 
• Ask both orally and in writing for a “re-credit” or refund of the lost money.  They have 10 days to do so, at least conditionally depending on the results of their investigation.
• IMPORTANT - Request the check or ask that they make sure the receiving bank keeps the check should it be deposited.  In other words, ask them to flag it so they can make sure any accepting bank holds onto the check rather than destroying it as they are allowed to do under Check 21.
• Get a copy of the check - requesting a substitute check if you cannot get the original.
• Make sure you get a letter from the bank that this has been done and that the account is marked “closed due to theft and not to be reopened.”
• Save this letter and send a photocopy of that letter and the police report to any merchant who has accepted a check from the closed account.  The letter form below can be used as a cover letter.
• If possible get letters from each merchant once they declare that you are not responsible for the charges.  Keep these in a locked area for at least 10 years.
• Put “stop payments” on any checks that have been stolen.
• Open a new account, adding a password so that no alterations can be made to this account such as change of address, adding additional users, etc.  without your permission.
• Ask your bank to notify all check verification companies.  Most will not take information from consumers.
• Pitfalls: Merchants don’t know this account is closed and may accept checks long after you have closed the account.  Be patient.  They are also victims of this crime.  The other problem is that you may need to write many letters, depending on the activities of the thief.  Some criminals stop after a few, some never seem to stop.  Your sense of humor and ability to regard this as one of the dirty chores you need to do will help keep this in perspective.

2.   Check washing-

• Your immediate problem is the one check that has been altered.  Notify your bank and have the fraud unit look in the situation.  If the check has not yet been destroyed (under the new Check 21 program) then they may be able to find the proof of alteration.
• Your second problem is that this thief now has your bank account number.  Immediately close the account and follow the directions for Check Theft.

3.   Checking account takeover-

• Your first issue is discovering the problem.  Warning signs are:
  • You don’t receive your bank statement
  • You receive a notice from the bank about a possible change
  • Checks have signatures that are not yours
  • Withdrawals, bank transfers or deposits you cannot account for
  • Merchant notification about a bounced check that you did not write
  • Having a check declined by a merchant, and you have not bounced any checks
  • A letter from a check verification company or a district attorney about a problem
• Should you discover that you are a victim of account takeover, immediately notify your bank, close the account and find out exactly who made the changes, when and how.  Other questions to ask- did they ask for a password or your Social Security number?
• If you believe that the perpetrator was someone inside the bank, change banks.
• Follow the directions for Check Theft 

5.   Check synthesizing-

• Your first issue is discovering the problem.  Warning signs are:
  • You receive an inquiry from a bank that you don’t use
  • You receive an IRS income statement from a bank you don’t use
  • Merchant notification about a bounced check that you did not write
  • Having a check declined by a merchant, and you have not bounced any checks
  • A letter from a check verification company or a district attorney about a problem
  • Notification about a warrant for bad checks 
• You can’t close an account that doesn’t exist.  You can’t notify every bank in the country.  However, ask your bank to notify the check verification companies about this problem.
• Try to collect as many of the “fake” checks as possible.  Unfortunately the new Check 21 program will make this difficult, as they will probably be destroyed.  However, a photocopy of the check should exist.  Turn a copy of the photocopy over to the police as you accumulate them.
• Again, write each merchant and explain the situation, including the fact that there have been __# of checks so far and that all have been reported to the police.

A NEW LAW YOU SHOULD KNOW: CHECK 21
For a full summary go to:  www.privacyrights.org/fs/fs30-check21.htm  or www.consumersunion.org/finance/ckclear1002.htm  

What are the main changes under "Check 21?"

• Under Check 21, original checks will be either kept or destroyed by the receiving bank.  Nothing in the law states how long a check must be kept.  In other words, if you bank at one bank, and the check is cashed at a different bank (not a branch of your bank), then the other bank decides when and if to destroy the check.  Your bank will no longer have the checks so you will not get them back.
• Checks you write will clear sooner, increasing the risk that a check will bounce if funds are not in the account when you write the check.  Don't write a check unless the funds are already in the account to cover it.
• You may not get access to the funds from checks you deposit any sooner, because the new law does not shorten check hold times.
• Under Check 21 different kinds of copies of a check will have different rights attached.  Check 21 creates a paper copy of an electronic image of a check.  One type of copy is called a substitute check, which will be a photocopy of both the front and back of your check.  Only this substitute check can be the legal equivalent of the original check. A substitute check is required if you want the right to recredit of the disputed funds.  A regular copy of a check does not carry these same protections.  If you ask for a copy of a check, your bank may send you an ordinary copy instead of a substitute check and that alters your legal rights and protections.  Always request a substitute check.
• (Per summary at Consumers Union) - Consumers will get new rights for some electronically processed checks, but not for others.  When a so-called substitute check is provided to a consumer, Check 21 gives the consumer a right to have funds of up to $2,500 re-credited to the consumer's account in 10 business days if the check is paid twice, paid for the wrong amount, or otherwise paid in error.  The statute is ambiguous about whether this new right applies when a paper substitute check is used in the processing of the check but is not returned to the consumer.  The regulations restrict the right of re-credit only to checks where the consumer was provided with a substitute check.  If a check is processed electronically by all the banks it is routed through without the use of a substitute check and the consumer is not provided with a substitute check, then the check remains under state check law.  In that case, the consumer does not receive a 10 day right of re-credit even if the electronic image of the check is paid twice, paid for the wrong amount, or if both the electronic image and the paper check are paid.  Only the special substitute check can be legally equivalent to the original check to prove payment.  The copies that a bank sends to consumers under a so-called "voluntary truncation" agreement, where the consumer agrees not to get the checks back, do not prove that a payment has been made, and do not trigger your Check 21 re-credit right. 

REDUCING YOUR RISK OF CHECK THEFT/FRAUD:
You can reduce your potential risk of being a victim of this crime by practicing a few safety tips:

• Mail theft- Always receive mail in a locked mailbox.  Those unlocked quaint boxes of yesterday are now also designed as locked mailboxes so style is not an excuse.  Go to the post office to send mail that contains a check.
• Shred, shred, shred- Cross cut all unused or old checks prior to tossing them in your trashcan.
• Use credit cards when possible.  Don’t carry your checkbook or deposit slips with you on a regular basis.  Keep them in a secure, locked place in your home.
• Only use checks with merchants you know and trust.  Remember that anyone receiving your check has access to the checking account information.
• Take time to learn about Check 21 and your bank’s policies.  You can ask about receiving “substitute checks” if you wish, though there may be a reasonable fee.
• Watch your account statements closely.  If you find an error, report it immediately to your bank both orally and in writing.  Make any requests for re-credits in writing.
• Add passwords to all credit and bank accounts.  A password is a strange word.
• When creating PIN numbers, do not use a number easily associated with you such as your birthdate or anniversary.
• Never have your Social Security number or driver’s license number printed on checks.  In fact, you might want to consider having your first initial and last name imprinted instead of your full name.  Then someone won’t know your name if they see only that information.  If you use a PO Box, use that on the check instead of your home address also.

RESOURCES:

To report fraudulent use of your checks

ChexSystems: (800) 428-9623 
Certigy/CPRS: (800) 437 5120
SCAN: (800) 262-7771
TeleCheck: (800) 710 9898

Several of these companies do provide a “consumer report.” Order reports from those that do provide them.  They should be free.

Credit Reports:  Should you fear that the thief has your Social Security number, contact the 3 Credit Reporting Agencies- put a fraud alert on your report and order your free report to which you are entitled as a “victim of identity theft.”

Equifax- 800- 525-6285
Experian (formerly TRW): 888- EXPERIAN  (888-397-3742)
Trans Union: 800- 680 7289

Federal Trade Commission (FTC).  The FTC offers information for victims.  File your case with the FTC Consumer Response Center.  Include your police report number.  Use the FTC uniform affidavit form.  (877) IDTHEFT (877-438-4338)   Web: www.consumer.gov/idtheft

Letter Form 126  Initial Victim of Identity Theft Statement and Fraudulent Account Information Request: Checking Account Fraud

Copyright February 2007, Identity Theft Resource Center®, all rights reserved.
Created by the ITRC
This fact sheet should not be used in lieu of legal advice. Any requests to reproduce this material, other than by individual victims for their own use, should be directed to ITRC.