Rampant Check Fraud Pits FIs Against Other FIs

Source: American Banker

Check fraud has become so widespread due to brazen criminality and mail theft that many financial institutions are struggling to collect on bad checks from other financial institutions.

Though fraud losses are skyrocketing at all banks, small banks appear to be bearing the brunt of check fraud. Banks typically reimburse their customers when a fraudulent or stolen check gets posted against their account but getting repaid for a bad check has become a long, drawn-out affair. 

Though fewer people are writing checks and check volume is declining overall, banks of all sizes are seeing a massive increase in check fraud since 2020, when stimulus and unemployment checks sent in the mail led criminals to target the U.S. Postal Service. The pandemic also has led to a loss of bank employees with proper training and expertise in inspecting checks and processing fraud claims.

But small banks say they need better protection from larger banks that are not doing enough to prevent check fraud and are bullying smaller banks into accepting the losses. 

Related: CUNA Mutual Risk Alert: Mail Theft Uptick Leads to Check Fraud