Because digital and electronic payments security is so commonly talked about, it can be easy to forget about check fraud, but scams dealing with paper checks still happen. According to Lori Swanson, Minnesota attorney General in an article published by Lillie News,Lillie News, check scams usually happen when a check is sent and then some of the money is wired to a third party or back to the sender.
When fake check scams work, it's because of two things: the person receiving the money didn't realize that it was fraudulent and federal law requires that a portion of the money deposited become available immediately.
For example, say John, an independent contractor, receives an email from a company who needs his services and says that they will pay upfront. John accepts the job and a week later a check arrives in the mail for more than was originally decided. John notifies the company who says it was a billing mistake and requests that John wire back a portion of the money. John does so and then a day or two later the bank notifies him that the check was fraudulent and the company nonexistent. Now John is responsible for the amount of money on the check. The money he wired to the company is gone. It was collected by the person running the scam.
This is just one way that a check fraud can go. Typically, it is some similar situation. A check from an unknown sender is sent, and then a wire transfer is suggested by that sender. According to Consumer Affairs, check scammers use the fact that it takes a few days for banks to process checks and identify a fraudulent check. By that time, the person running the scam has already completed the scam.
How to avoid check scams
While it can be hard to identify check scams, if you take the following steps you should be safe:
- Be wary of checks from people or companies you don't recognize
- Always research a company or person who sends you a check to determine if it is legitimate
- Don't deposit a check from someone you don't know
- If you deposit money, wait for the check to clear before you do anything with that money
- Don't send money to third parties on behalf of someone or some company
One of the best ways to avoid check fraud is to simply avoid checks. Request direct debit payment, a money order or cash for services and products. If you're selling products or services online, try using a intermediary payment processing company.
If you do become the victim of fraud, make sure to report it to the wire transfer company that you used – usually MoneyGram or Western Union. It can also be a good idea to notify local law enforcement offices. Depending on the scale of the scam, local law enforcement may choose to notify the Federal Bureau of Investigation. Once they have been notified, you should also report the fraud to the U.S. Federal Trade Commission. If you fail to report the fraud, others could become victims of the same scam.
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