Independent Banker - June 2024 - 35

changes allow the individual to
illicitly cash the altered checks.
Stealing and altering paper checks
is just one type of check fraud.
Creating fake checks using desktop
publishing programs is another way
banks get ripped off , and double
deposit scams occur when someone
creates and cashes an electronic
substitute check and then cashes the
paper check at a diff erent institution
before the substitute check clears.
The volume of government checks
sent through the mail has slowed
since COVID, but the criminal
appetite for check fraud has not
diminished. This is shown by the
number of Suspicious Activity
Reports fi led in 2022 and by a
February 2023 FinCEN alert issued
to fi nancial institutions about the
rise in check fraud incidents.
What can you do?
The new check fraud resource
from ICBA provides guidance for
community banks on how to limit
check fraud and what to do if their
institution or customers are aff ected
by a check fraud incident.
For example, in " Appendix 2:
Mechanisms for Preventing Check
Fraud, " community bankers can
fi nd practical advice on slowing the
problem. Strategies discussed in the
guide include training employees
to identify check fraud, educating
customers on ways to prevent fraud
and issuing checks with anti-fraud
In 2022, banks filed 680,000
suspicious activity reports related to
check fraud to FinCEN, nearly double
the number of the previous year.
prevention characteristics.
The guide also provides
suggestions on how banks can
limit their liability, such as
requiring customers to provide
notice of invalid checks in a timely
manner, including language in
account agreements that limits
consequential damages and
requires customer cooperation,
and recommending that business
customers use Positive Pay or the
FedPayments Reporter Service.
More from ICBA
Find ICBA's guide to
fighting check fraud at
icba.org
Clarifying responsibility
Another key issue that the resource
addresses is who is responsible
when check fraud occurs-the bank
of fi rst deposit (which accepted
the check), the paying bank (which
holds the account from which the
check was issued) or another party
in the check clearing process.
Generally, the liability exists
with the party that has the best
opportunity to spot the fraud. For
example, a change in the amount
of the check or the name of the
party to whom the check is written
is typically the responsibility of
the bank of fi rst deposit, since
presumably that bank could
have noticed the alteration when
the check was presented. On
the other hand, in the case of a
counterfeit check or a check with
a forged signature, liability lies
with the paying bank, because
that institution is more likely to
recognize those forms of fraud.
The ICBA guide provides a
useful summary of this issue with
details on each type of check fraud.
It further explains possible legal
defenses against liability for paying
on an altered or forged check. In
one case, a paying bank may claim
that another party in the check
clearing process failed to exercise
" ordinary care " when cashing the
check, or that a company issuing a
check failed to establish appropriate
internal controls over employees
with check-writing authority.
This new resource is an important
fi rst step in helping community
banks understand how to navigate
instances of check fraud. ICBA's
new Check Fraud Working Group
is also developing a checklist that
members can use when a customer
presents a claim of check fraud,
and other resources are in planning
stages. These eff orts will never
prevent check fraud, but they can
assist community banks' response
to this costly problem.
Lance Noggle is senior vice
president, operations and senior
regulatory counsel for ICBA.
independentbanker.org // 35
http://www.icba.org http://www.independentbanker.org
Independent Banker - June 2024

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