Prosecuting Check Fraud | A Guide for Financial Institutions to Fight Back

Catching check fraud before it’s deposited is obviously the ideal scenario for banks and credit unions because it avoids the litigation and expense of prosecuting for fraud. Not to mention it avoids the fraud loss. However, when bad items do sneak through, there are some important things banks can do to fight back and prosecute repeat check fraud offenders. Here is what you need to know to act to prosecute fraud attempts at your financial institution.

Typically, businesses are the primary targets of check fraud professionals - especially by organized groups of criminals who work together to perpetrate these crimes.

Check fraud is a serious offense and comes with very real legal consequences which vary by state. Depending on the severity of the crime, the amount that was defrauded, and the number of instances of fraud the perpetrator completed, check fraud can be either a misdemeanor or a felony.

Check fraud in the U.S. can carry severe penalties including fines up to one million dollars, a prison sentence exceeding 30-years, or a combination of both types of actions.  Additionally, many first-time offenders who previously held no criminal background at all, have received harsh sentences for a first offense in financial fraud, and there may be recourse at both the state (criminal) and civil level.

Possible Check Fraud Defenses

There are some caveats FIs need to consider before pursuing a check fraud or bad check lawsuit including: 

  • If the bad check was post-dated with a date after the date it was presented, then it may not qualify as a fraudulent check. In this case, the ‘fraud’ is extending a line of credit and is technically in a bad debt situation.

  • If the fraudster stops payment on a bad check, this could be used as defense.  However, it must be stopped before an insufficient funds notice returns. So, if a bank or credit union wants to prosecute a fraud attempt it has to have gone through to insufficient funds causing the financial institution to incur a loss on the check.

  • If there is evidence of a payment of antecedent debt.

  • If the maker wrote the bank an insufficient money notice with a promise to repay, thereby creating a temporary credit extension.

  • If there were prior dealings of both parties involved.

  • If the issuer were proven insane or intoxicated during the writing.

  • If fraudulent activity were traced to someone else other than the accused.

  • If the issuer had a lack of knowledge that the check would not be honored. 

  • If the defendant is in good community standing and deemed of good character. 

Typically, businesses are the primary targets of check fraud professionals - especially by organized groups of criminals who work together to perpetrate these crimes. As far as counterfeiting and alteration, payroll checks are a favorite although all forms of business checks are targets, and all forms of fraud techniques are practiced as well.

Businesses do have some responsibility to ensure their checks are secure. Recently revised UCC regulations add the onus of shared responsibility for check fraud on the business. For example, if a bank offers their customer check stock that contains security features that could have prevented a specific case of fraud, the bank can claim that the customer was negligent and therefore at least partially liable for the fraud loss. There are several precautions businesses can take to help mitigate being targeted for check fraud including adding security features to checks that make it more difficult for fraudsters to counterfeit or alter checks. Furthermore, reserves of checks, deposit slips, and other banking documents should be kept in a locked, secured facility. Lastly, it’s smart for businesses to separate the check writing and account reconciliation functions in the business so that the same person writing checks doesn’t also have control over balancing bank statements. That simply gives one individual too much access and power to commit a crime. 

How the Law Works to Prosecute Check Fraud

Before a person is charged with a crime for writing a bad check several things have to happen. First, the merchant account holder or bank who cashed the bad check must send the writer of the check a five-day notice. As the name suggests, the letter is to put the writer on notice that he or she has bounced a check and that payment - including reimbursing the merchant or bank for the returned check fee associated with the bad check - is needed within five business days of receiving the letter. If that doesn't work, some businesses will make a second attempt and then take the check, along with documentation that they've already tried to collect on it, to the police. The police then will send out another letter - this one a 10-day notice telling the writer of the bad check that failure to make good on the debt will result in the matter being turned over to the prosecutor's office. Authorities say the vast majority of cases don't go beyond these two preliminary stages.

 The law makes it a crime to knowingly write a check for which there is insufficient funds in the bank. That’s why running all checks through TrueChecks® to verify the account status and look for any alerts is a great prevention method for these bad checks. The crime of knowingly writing a check against an account with insufficient funds is a misdemeanor if the amount of the check is less than $500, but it jumps to a two-year felony if it exceeds that amount or the person writes more than three bad checks in a five-day period. Again, in this situation TrueChecks® would keep records of the dates, account numbers, and a full scan of the check in the system so that the bank has the record of these bad check attempts to help you in court. Contributing this important data back into the system is an important part of being an AFS customer and the reason the database contains so much current and comprehensive information. Another type of "bad check" is a "no-account" check. Those are checks written on accounts that either don't exist or have been closed. Those cases automatically jump to the felony level. According to, “Prosecutors say the number of bad check cases for which they are authorizing charges seems to be on the increase. And while they can't say for sure, it could be a case of tough economic times leaving a greater percentage of bad check passers unable to make good on their debt before the case goes to court.”

Use these tips to tackle check fraud head-on and make sure everyone on your staff who handles incoming check deposits is running them through TrueChecks® or TrueChecks® Batch – fighting fraud starts with prevention!

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— written by Advanced Fraud Solutions