Counterfeit Check Scams: How to Protect Your Business

How the scam reaches a business

The FTC describes the small-business version: a customer pays by check, the check is for more than the price, and the customer asks you to send the difference back. The FTC says this is a fake check scam even when it looks like a normal refund request. The FTC and the FDIC list other cover stories too, such as overpayment on online sales or rentals, fake jobs, mystery shopping and prizes. In each case the sender asks you to send some of the money back or pass it to someone else.

The sequence is usually the same:

1. A stranger or a new contact agrees to buy, hire or pay.
2. A check arrives for more than the amount owed, with a reason: a mistake, a shipping fee or a third party who must be paid.
3. The sender asks you to deposit it and send back the difference, or pay someone else, by wire, gift card or cryptocurrency, and to do it quickly.
4. The bank makes the deposit available, so your balance looks good.
5. Days or weeks later the check is returned as fake. The money you sent is gone, and the bank takes the deposit back.

Why “available” does not mean “good”

Regulation CC sets how fast a bank must release deposited funds. Cash and electronic payments must be available by the next business day. Cashier’s, certified and teller’s checks are also next-day when they are deposited into the payee’s own account, in person, and meet other conditions. For other checks, the first $275 of a day’s deposits is next-day (12 CFR 229.10).

Fast access to funds is not a decision that the check is valid. The FTC puts it this way: “Even if you see the funds in your account, that doesn’t mean it’s a good check.”

A bank may delay funds when it has reasonable cause to believe a check is uncollectible. That needs facts that would cause a well-grounded belief in the mind of a reasonable person, and the bank must give a written notice that states the reason (12 CFR 229.13(e) and (g)). Other holds apply to new accounts and large deposits. The current text sets the threshold at $6,725 (12 CFR 229.13(a) and (b)).

If the check is returned, the collecting bank can revoke the credit and charge the amount back to its customer’s account (UCC 4-214(a)). The FDIC warns that if a check is found to be counterfeit, “you will likely be held responsible for the funds that were provided to the scammer.”

Warning signs

• The check is for more than you are owed, and you are asked to return the difference.
• The payer is someone you do not know, or the check comes from a third party or an unrelated company.
• You are asked to send money by wire, gift card or cryptocurrency before the check is verified.
• The bank’s name is unfamiliar, or the postmark does not match the issuing bank’s city and state (FDIC).
• Security features such as watermarks or security threads look poorly made (FDIC).
• The sender will not meet or speak with you directly, or presses you to move money at once.

How to protect your business

• Do not rely on money from a check, or send money out because of it, unless you know and trust the payer.
• Do not accept a check for more than the price. Return it and ask for a correct payment instead of refunding the difference.
• Verify the check. Find the issuing bank’s phone number on its official website, not on the check, and ask the bank to confirm the check number, date and amount. The FDIC’s BankFind tool shows whether a bank is FDIC-insured.
• Ask your own bank for its funds-availability policy and for the notice it gives when it places a hold.
• For new customers, choose a payment method you can verify before you ship goods or start work. See Getting paid by U.S. buyers.
• Write a rule for staff who open mail or make deposits: no refund and no return of an overpayment until the issuing bank has verified the check.

If you already deposited the check or sent money

1. Stop sending money. Do not answer further requests from the sender.
2. Call your bank at once. Tell it which check you deposited, what you sent and how you sent it (wire, card or cryptocurrency), and ask what it can do.
3. Keep everything: the check, the envelope with the postmark, e-mails, texts, invoices and payment receipts.
4. Report the scam to the agencies below.
5. Expect that the bank may charge the returned check back to your account. If the bank demands repayment, read your deposit agreement and talk to a lawyer about your options.

Where to report

• FTC: ReportFraud.ftc.gov.
• FBI Internet Crime Complaint Center (IC3): complaint.ic3.gov, the FBI’s intake for cyber-enabled fraud and scams.
• U.S. Postal Inspection Service, if the check came by mail.
• Your state attorney general or local consumer protection agency.
• The bank named on the check, and the website or service where you met the sender, so they can block the person (FDIC).