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Feds Warn Consumers About Counterfeit Check Scams

By Mark Huffman
ConsumerAffairs.com

January 17, 2007

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Cashier's, or bank checks, are considered so safe and reliable many consider them to be as good as money. And that may be why a growing number of criminals are counterfeiting them, to ensnare unsuspecting victims in their schemes.

In response to these scams, the U.S. Office of the Comptroller of the Currency has issued an advisory, outlining ways consumers can avoid becoming victims of scams involving cashier's checks.

In most of these cases, individuals receive a cashier's check and are asked to deposit the check into their account, wait until funds become available and then wire some part of the funds from their account to a third party, often in a foreign country.

Although the amount of a cashier's check quickly becomes "available" for withdrawal by the consumer after the consumer deposits the check, these funds do not belong to the consumer if the check proves to be fraudulent. It may take weeks to discover that a cashier's check is fraudulent.

In the meantime, the consumer may have irrevocably wired the funds to a scam artist or otherwise used the funds—only to find out later, when the fraud is detected—that the consumer owes the bank the full amount of the cashier's check that had been deposited.

A cashier's check is an instrument issued and sold by a bank, and is a direct obligation of the bank. For decades, cashier's checks have been used as a trusted form of payment to consumers for goods and services.

There are a number of known scams involving cashier's checks, many involving an unexpected windfall.

In one, the victim is advised that he has won a foreign lottery and that the proceeds will be sent to him once the taxes or fees are paid. A cashier's check is provided to cover those charges, and the victim is asked to deposit the check, wait until it clears and then wire funds to cover the taxes and fees. In most cases, the wire transfer is directed to an account in a foreign bank.

Although funds represented by the cashier's check may be made available to the customer the next business day, and funds availability may be referred to as a check "clearing," funds availability is not a determination that the check is legitimate. Fraudulent checks can be very difficult to detect, and it may take several weeks for a fraudulent check to be returned to the customer's bank.

When the check is returned, the bank reverses the deposit and withdraws the funds from the customer's account. Wire transfers, however, represent an instantaneous and irreversible transfer of funds. If the individual has already wired money to a third party, those funds cannot be recovered by the bank.

While it can be very difficult for consumers to know if a cashier's check is fraudulent, the OCC guidance details a number of specific steps consumers can take to protect themselves, including these:

• Try to know the people with whom you do business. When possible, verify information about the buyer from an independent third party such as a telephone directory. Be cautious about accepting checks – even a cashier's check – from people that you do not know, especially since it may be difficult to pursue a remedy if the transaction goes wrong.

• When you use the Internet to sell goods or services, consider other options such as escrow services or online payment systems rather than payment by a cashier's check.

• If you do accept a cashier's check for payment, never accept a check for more than your selling price if you are expected to pay the excess to someone else. Ask yourself why the buyer would be willing to trust you, who may be a perfect stranger, with funds that properly belong to a third party.

• A cashier's check is less risky than other types of checks only if the item is genuine. If you can, ask for a cashier's check drawn on a bank with a branch in your area.

• If you want to find out whether a check is genuine, call or visit the bank on which the check is written. That bank will be in a better position to tell you whether the check is one they issued and is genuine.

• Know the difference between funds being available for withdrawal from your account and a check having finally cleared. Your bank may be required by law to make funds available to you even if the check has not yet cleared. However, it could take several weeks to know if the check will clear or not.

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