Correction to This Article
The Color of Money column in the Feb. 18 Business section gave an incorrect Web address for the Federal Deposit Insurance Corp. The correct address is www.fdic.gov.

Fake Checks That Make You Pay

By Michelle Singletary
Sunday, February 18, 2007

True or false: If a check "clears" within the typical one to five business days but later is discovered to be fake, the bank customer who deposited the check and subsequently spends the money cannot be held financially responsible for the fraud.

If you answered false, congratulations. You know something about how the banking system works.

But if you answered true, you could be conned one day.

Just because you might have access to the funds deposited via a check does not mean the check is "good." Although federal regulations require financial institutions to make funds from a deposit available generally within one to five business days, it can take weeks before a bank discovers that a deposited check is worthless.

The National Consumers League recently reported that fake-check scams are rising alarmingly. In 2006, counterfeit-check scams shot to the top of the league's telemarketing fraud list and ranked third among Internet-based scams.

"It's really frightening, and we are seeing just a little snapshot of what's going on," said Susan Grant, director of the league's fraud center.

There are a number of ways that people end up with fake checks, she said. Leading the way are work-at-home schemes. In one variation, a person is supposedly hired as an account manager by a foreign company and asked to deposit checks from U.S. customers who turn out to be fake. The person is instructed to deposit the checks and take her pay from the deposited funds and then send the remainder to the (bogus) company. The worker has no idea the checks are fraudulent.

Fake checks are also being sent to people who believe they have won a sweepstakes or lottery. These victims are told to cash the checks and wire money supposedly to pay taxes or other fees.

In another fake-check scheme, someone selling an item through a newspaper or an online auction is sent a check for far more than the item is being sold for. The seller is asked to wire the difference back to the buyer. There is always what sounds like a good explanation for the larger check amount. An accounting error, perhaps. It's only later -- weeks sometimes -- that the seller learns that the check was returned as counterfeit.

According to the Federal Deposit Insurance Corp., which recently issued tips to avoid being conned by this scheme, a depositor is most likely to be held responsible for all the money if a deposited check, cashier's check or money order comes back later as fake or counterfeit.

I know what you're thinking.

Isn't it the bank's job to verify checks? A check is only provisionally cleared at first, and you're responsible if it's fraudulent.


CONTINUED     1           >

© 2007 The Washington Post Company