Check-Cashing Technology May Open You Up to Fraud

Can someone cash more than once a check you’ve written? Yes, thanks to the intersection of very old and very new banking technology. It was impossible until recently – payees formerly were required to hand paper checks over to banks during a deposit. But with mobile banking, some experts predict “double presentment” will soon be the source of a new wave of fraud. And if you don’t know about it, even if you don’t use mobile banking, you might have to foot the bill.

It happened to Louise Moon Rosales of Vermont. Twice in the past year, she wrote checks to pay for small services such as yard work. Both were cashed … and then cashed a second time a few months later. Her bank honored both payments. For example: a $100 check she wrote to a high school student for yard work was cashed in December and then again in April. How?

The student used a new, popular checking account tool called “remote deposit capture” — he deposited the check with his cell phone. Check recipients who do that get to keep the paper check, rather than hand it over to a teller or an ATM. That means the check can be deposited a second time, a problem known in banking as “double presentment.”

“I totally could have missed it,” Rosales said. “If I didn’t use Quicken I would have. … I use online Quicken to reconcile the accounts, and that is how I found it.”

(Want to learn more about hacking and how to protect yourself? Visit Bob Sullivan’s cybercrime page.)

It seems almost too simple: criminals depositing the same check multiple times. But with banks racing to offer remote deposit capture and mobile banking ahead of the competition — some analysts think half of all retail deposits will use the technology by next year. That means they are beginning to favor speed over safety.

And there’s another element that makes mobile banking ripe for the next wave of fraud, predicts analyst Shirley Inscoe of Aite Group. With EMV credit cards equipped with computer chips finally becoming a reality in the United States, eliminating one popular kind of fraud, criminals will aggressively hop to another technique to replace lost income.

“I predict that organized fraud rings, which will be actively looking for new targets as EMV becomes more fully implemented, will discover (mobile remote deposit capture) in a big way,” she said.

Spotting fraud takes time, and using fraud-fighting technologies is always a balancing act of convenience vs. security. It seems logical that a bank would quickly scan check numbers to make sure the same check hasn’t been deposited before, but for small dollar amounts, even that level of delay can be seen as unnecessary. Still, banks have historically been good at catching double presentment at the same institution using the same channel — the same check deposited twice using the same mobile phone, for example — says analyst Bob Meara of Celent.

But if criminals use different channels — first time on a phone, second time at an ATM — that gets a little trickier.And depositing the same check into multiple checking accounts at multiple banks? Well, that’s a big problem.

“Even the most rigorous deposit review mechanisms are powerless to identify and reject items that have been previously deposited at other financial institutions,” Meara writes in a recent report.

Part of the problem involves honest mistakes, which turned out to be the source of Rosales’ trouble. One check was refunded by her bank, TD Bank, the other by the student.

(TD Bank told me it couldn’t discuss an individual consumer’s account, but offered this statement: “TD takes the safeguarding of our customer information seriously and has fraud detection processes in place to help protect customers.”)

“Accidental double presentment” occurs when a consumer isn’t sure if she/he (or a spouse) previously cashed a check. The problem is a new one for consumers, who aren’t used to hanging on to physical checks after they’ve been cashed. Some banks tell consumers to hold on to the paper for a month or more, leading to inevitable confusion over what’s been cashed and what hasn’t.

Until recently, banks have been very judicious about granting remote deposit privileges to account holders, which has kept fraud rates very low. Tenure with the institution, deposit history, and average daily balances have all dictated which consumers or businesses were granted mobile deposit eligibility. Banks have also established low maximum daily deposit limits, another disincentive for fraud. Meara says fraud has been extremely low.

“Indeed, banks wish credit card portfolios would perform in such a fine fashion,” he said. Mobile deposit security technologies are “light years ahead of what was once status quo: taking manual deposits at the branch.”

But with the new, highly competitive environment, pressure to accept remote deposits from anyone — and for high deposit limits — has led to lowering of standards, Inscoe said. That means more fraud, Inscoe warns.

“As I continue talking with financial institution execs, I am hearing that more and more banks are dropping the requirement that an account be opened for a specific period of time before being eligible for MRDC (mobile remote deposit capture) due to competitive pressures. As that requirement is dropped, fraud is becoming quite a problem,” she told me. “At some point, the need for fraud relief may outweigh the competitive pressures and force banks to reinstate the new account ‘wait period’ before allowing customers to use MRDC.”

In the meantime, take precautions:

Watch for checks cashed twice! Consumers should take heed of Rosales’ lesson. If she hadn’t caught the double withdrawals, she would be out the money. Don’t rely on your bank’s department to catch the problem.

Even if you don’t use mobile banking, you can be a victim. It’s also incredibly important to understand that you can be a victim of double presentment even if don’t use online banking or mobile banking. All that matters is the criminal/absent-minded payee uses remote deposit capture. All you have to do is write an old-fashioned check to be victim or the latest banking fraud.

Are you at home with the technology that your bank is rolling out? Share with us in comments below or on our Facebook page.