Banks Honor Bogus Checks and Scam Victims Pay

The price for this classic Mustang was $8,000; the overseas buyer sent a check for $14,000 to cover shipping and wanted the difference wired.
The price for this classic Mustang was $8,000; the overseas buyer sent a check for $14,000 to cover shipping and wanted the difference wired. (Courtesy Of John Schaefer)

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By Caroline E. Mayer
Washington Post Staff Writer
Thursday, June 1, 2006

Trying to sell his 1968 Mustang online, John Schaefer received what appeared to be a firm offer from an overseas classic-car dealer. The buyer sent Schaefer a check for $14,000 even though Schaefer was asking only $8,000. The buyer said the extra money was to cover shipping and directed Schaefer to wire him the difference.

"It seemed kind of funny, and I had some hesitation," said Schaefer, who deposited the check in his bank's ATM over the weekend. On Monday, he asked a teller to see if the check was good. She left her perch, went to the backroom and returned assuring him "there was no problem," Schaefer recalled.

On Wednesday, "still not feeling quite right," Schaefer asked the same teller to make sure the check was good. That time, the teller told him the check had been cleared and he was "all set." Schaefer withdrew $5,000 and wired the money to the buyer.

Four days later, as he reviewed his account online, he discovered the check was not good. Even worse, the bank was demanding that he repay the $5,000.

"Had I made the deposit and not tried to make sure it was legitimate, I should have full obligation to make good on it," said Schaefer, 34, a facilities manager in Brattleboro, Vt. "But I checked with the bank twice, and now I find out they have no accountability."

Schaefer is one of thousands of consumers who have been victimized by an increasingly common check scam that relies on the vagaries of the banking system to take advantage of unsuspecting consumers.

Federal rules require banks to release funds from a consumer's deposit quickly, usually within one to five business days, depending on the kind of check. However, it can take weeks before a bank discovers a check is fraudulent.

So when a teller says "the check has cleared," the teller is "usually thinking in terms of bank rules, that the hold time is over, and the consumer now has access to the funds," said Susan Grant, director of the National Fraud Information Center.

But the average consumer thinks that phrase means "the check is not fraudulent," Grant added.

When that happens, it is depositors who are responsible for the money, she said. As the American Bankers Association explains in a "Fraud Alert!" statement insert it distributes to banks to send to customers: The consumer is the one dealing directly with the person who sent the money and therefore is "in the best position to determine how risky the transaction is."

To facilitate the flow of funds behind the 40 billion checks processed each year, banks are required to release funds within a few days, said Nessa Feddis, senior federal counsel for American Bankers Association.

If tellers start asking a lot of questions or start holding checks until they are determined to be good, banks "might be perceived as trying to circumvent the rules entitling people to withdraw funds," Feddis added. And if the banks are wrong, it will only be a matter of time before they are hauled before Congress and "accused of trying to hold on to people's funds," she said.


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© 2006 The Washington Post Company

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