The impact of bank and check fraud can be severe enough to contribute to significant losses in the banking system. The Federal Bureau of Investigation and the Federal Reserve are diligent in articulating the costs of fraud upon consumers and the severity of how criminal bank acts are handled.

Writing and depositing checks are ordinary banking transactions. We are accustomed to giving and accepting checks as a normal way to exchange money. Most often, we are so comfortable with this process we do it without much thought or worry.v

Check Fraud

Check kiting is a form of fraud involving the manipulation of uncleared funds between two or more bank checking accounts. In the check kiting process, a person with a checking account in two banks creates the illusion of money in his account. Check kiting involves the unauthorized use of bank funds by swapping of checks between accounts in a manner which is designed to take advantage of the float that exists in the banking system to artificially inflates bank account balances. In check kiting the perpetrator is able to create the impression of having a real balance in each of the banks by carefully timing deposits and checks, and taking advantage of the time needed for checks to clear. For instance, a check drawn on Bank A is deposited with Bank B. Before the check reaches Bank A for payment, a check drawn on Bank B is deposited into Bank A. This cycle repeats until the offender is caught, or until the offender deposits genuine funds, thereby eliminating the need to kite, and often going unnoticed In a check-kiting scheme, the last bank holding the check will typically be the one to take the loss.

This form of check kiting may seem to be too complicated for such a small payoff, but sloshing the funds back and forth between accounts can buy the criminal enough time to generate real money to cover any other outstanding checks. Some people have been known to use this method, called circular check kiting, when several checks on an overdrawn account may come due before a paycheck or other regular funds can be deposited. Circular kiting describes forms of kiting in which one or more additional banks serve as the location of float, and involve the use of multiple accounts at different banks. The circular check kiting scheme depends on the bank’s delay between receipt of deposits and checks and their eventual processing, also known as “float time.”

Check kiting ultimate goal of illegally acquiring or borrowing funds is unlawful use of these funds and is a form of bank fraud that can be prosecuted under Federal law.

Fraudulent Cashier’s Check

Fraudulent cashier’s check is a banking scam on the rise. What is a fraudulent cashier’s check? A cashier’s check is a check issued by a bank and payable to a specific person. Because a cashier’s check is issued by a bank, itself, the cashier’s check is paid by funds of the bank and not the depositor. Therefore, if an item is considered genuine, there is very little risk that the instrument will be returned and is considered as good as cash.

Sometimes, however, a cashier’s check is not genuine, and, if you unknowingly accept a fraudulent cashier’s check in exchange for goods or services, you will likely be the one who suffers the financial loss.

When you deposit a check into your account, your bank generally is required by law to make the funds available within a specific period of time. Federal regulations require institutions to make funds from a deposit available quickly, generally within one to five business days; it can take a few days or longer before the bank discovers that the deposited check is worthless or fraudulent. Therefore, even if the funds have been made available in your account, you cannot be certain that the check has cleared or is good.

It’s very difficult for the average consumer or business owner or even bank teller to recognize a counterfeit check, so you’re usually better off looking for the basic signs of a scam instead of focusing on the check itself. This is true even if the check has not yet cleared through the banking system. Your bank also may not be able to determine that the check is fraudulent when you deposit it. Scammers try to make the item look genuine, which will delay discovery of the fraud.

Consumers often ask the FDIC whether federal deposit insurance covers losses caused by fraud or robbery. By law, the FDIC only protects insured deposits if a banking institution fails. However, banks and other financial institutions typically purchase special private insurance policies to cover losses from criminal acts. Also remember that federal and state laws also may limit a consumer’s losses due to fraud.

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