Thursday, February 4, 2010

Seller Beware. Cashier's Checks Not Always As Good As Cash

I love it when I find another person that thinks the same way that I do.  This article might be a few years old, but it is right on point.

Seller Beware. Cashier's Checks Not Always As Good As Cash

January 2005

By Susan N. LeDuc, CRCM

Many of us grew up hearing "a cashier’s check is as good as cash," and it has been true for decades; a cashier’s check, which is drawn by a bank on its own funds, cannot "bounce" or be returned for insufficient funds. A cashier’s check has been and still is a trusted method to conveniently transfer sums of money that are often larger than you would want to carry or transfer in cash. A cashier’s check is also more acceptable to those on the receiving end that do not want a personal check. Unfortunately, fraudsters are very good at finding and exploiting our trust.

By betraying our trust of banks, fraudsters are passing counterfeit cashier’s checks to unsuspecting individuals and businesses and tricking people out of large sums of money. Unfortunately, the trickster is not often caught, and individuals and businesses suffer the loss. That means that all of us — individuals, business and financial institutions — must change our behavior or risk being duped by a fraudster.

Cashier's check fraud scenarios

So how does this fraud loss happen? Often, an individual or business has some asset to sell, such as a car or a piece of equipment. You advertise the item in either a newspaper or on-line, an offer is made, and a deal is struck. You agree to sell your item for $12,000 in the form of a cashier’s check. Either your buyer arrives in person or, more typically, a cashier’s check arrives via mail. You make the deal (you take the cashier’s check, the buyer takes the item), and you promptly head to the bank and deposit the check. The check is deposited and you are told it will available tomorrow. At this point, you might use the money toward some other purchase. A week later, the bank calls you to say that the cashier’s check has been returned unpaid because it is a counterfeit check. The deposit has been reversed from your account [and you may have a negative balance]. You also do not have your asset (the car or equipment). You have been defrauded — tricked out of your money.

Another variation on the scenario is that the check the buyer used to pay for the item is for more than the agreed upon price. Using the example above, say the buyer arrived with a cashier’s check for $15,000. He gives you the check and a believable story and asks for you to mail him a cashier’s check for the difference. You think the buyer must be on the up-and-up because he trusts you to return the excess! You deposit the $15,000 cashier’s check, go back the next day and buy a cashier’s check for $3,000 and mail it as instructed. A week later, the $15,000 cashier’s check is returned unpaid because it is a counterfeit, and you now have a $15,000 loss, not a $12,000 loss!

Reasons for increase in bank check fraud

The number of counterfeit cashier’s checks deposited into banks has steadily increased in recent times. Much of this increase is attributed to the increase in private sales between individuals as facilitated by the internet and online auctions.

There are also inexpensive software programs that allow someone with a computer, a scanner and a good quality printer to "create" a document which looks like a genuine check. Some counterfeits are doctored copies of genuine checks; other counterfeits are complete phonies. Even banks have trouble identifying genuine and counterfeit cashier’s checks.

The situation is further complicated by federal bank regulations. The Expedited Funds Availability Act, which is implemented by Regulation CC (12 CFR 229), provides the maximum number of days that a bank can hold a deposited check before making the funds from a deposit available (i.e., can be accessed by check or other withdrawal) to the depositing customer. This rule was developed to prevent overly long holds that banks and others placed on deposited funds.

Because of the misdeeds of a few, now all banks and financial institutions must adhere to Regulation CC. This regulation does provide for certain exceptions, but generally, a bank is required to make the funds deposited via cashier’s check, "available" on the next business day after the day of the deposit if certain conditions are met. Making the funds from a check "available" means that the funds can be conditionally accessed, but the checks are still subject to final clearing and charge-back if the item is not honored.

Regulation CC obviously reflects that historic trust that cashier’s checks are as good as cash! Unfortunately, the only way Regulation CC deals with the possibility of counterfeit cashier’s checks is in the exceptions to the availability schedules. This means that unless the bank places a longer exception hold on a deposited cashier’s check, all parties involved — the customer, the fraudster, and the Bank, all know that the funds from that deposit will be available for withdrawal by the customer long before the bank knows whether the item will be returned or not. It can take up to 7-10 days from the time a check is deposited for it to be returned to the bank as unpaid.

Don't be duped! Protect thyself

Banks that issue cashier's checks. Expect to receive calls from individuals and businesses who are payees on official checks so that the bank can confirm that such a check was issued. A bank should also be able to verify the check number, the payee, the issue date, the amount, and the authorized signer. Confirmation that a cashier’s check was issued is not a guarantee that it will be paid. However, it does eliminate many risks associated with counterfeit cashier’s checks.

Individuals and businesses accepting cashier's checks for payment. Verify that the check is genuine. Call the issuing bank (use the phone book, the bank’s website or directory assistance — do not use a telephone number printed on the check — it could be a hoax) and confirm that the item was issued. If you can’t confirm that the check was issued, consider canceling the transaction or not releasing the purchased item until the check has cleared and the funds are available and not subject to chargeback.

Banks accepting cashier's checks for deposit.

Consider offering a service to depositors to confirm (i.e., call the issuing bank) that an official check was issued. Confirmation that a cashier’s check was issued does not guarantee that the check will be paid. However, it does eliminate many risks associated with counterfeit cashier’s checks.

Publicize the existence of counterfeit cashier’s checks and how to protect against them. Consider adding a link on your website to your federal regulator’s list of counterfeit cashier’s check notices.

If the bank cannot confirm the check’s issuance, place a Reg. CC exception hold (doubting collectibility) on the deposit. Properly notify the depositor of the hold.

Consider sending the cashier’s check for collection rather than depositing it into the customer’s account directly.

Advise individuals and businesses that deposit official checks that availability is not the same as "cleared."

Train tellers and Customer Service Representatives to make a distinction between available and cleared. Do not confirm that an item is cleared unless the bank is certain that the item will not be returned.

If an official check is returned unpaid as counterfeit, the bank should submit a SAR and file it with FinCEN, police and the state banking commission.

Remember: Genuine cashier’s checks issued by a bank are as good as cash, but the counterfeit ones look like the real ones. Suspect that a cashier’s check could be counterfeit, and independently confirm its issuance before accepting it.

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