WSJ Your Money Briefing - Why Paper Checks Are a Gold Mine for Scammers

Episode Date: November 20, 2024

Check fraud rose nearly 400% in the U.S. last year, according to a Financial Crimes Enforcement Network report. And scammers are now using social media to promote a low-tech check scheme and post tips for other fraudsters. Wall Street Journal reporters Oyin Adedoyin and Justin Baer join host J.R. Whalen to discuss how it works and what you can do to protect your money.  Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Exchanges. The Goldman Sachs podcast featuring exchanges on the forces driving the markets and the economy. Exchanges between the leading minds at Goldman Sachs. New episodes every week. Listen now. Here's your money briefing for Wednesday, November 20th. I'm JR Whalen for the Wall Street Journal. Check fraud went up nearly 400 percent in the U.S. last year and criminals are upping their game when targeting Americans who still write out paper checks and drop them in the mailbox. Stealing them has been a challenge that consumers

and banks have had. And then what you have had is the emergence of social media and the ability to communicate and compare notes and teach one another different tricks of the trade in order to get this going again. We'll talk to WSJ's Justin Baer and Oyen Adedoyan about how fraudsters are cashing in after the break. What do Ontario dairy farmers bring to the table? A million little things. But most of all, the passion and care that goes into producing the local, high-quality milk we all love and enjoy every day. With 3,200 dairy farming families across Ontario

sharing our love for milk, there's love in every glass. Dairy Farmers of Ontario, from our families to your table, everybody milk. Visit milk.org to learn more. Check fraud schemes are on the rise. The Wall Street Journal's Justin Baer and Oyen Adedoyan join me. Banking has become such a digital world. Oyen, how many people are still using paper checks? The U.S. relies on checks far more than many other countries. It has the highest per capita check usage in the world, with about 30 checks used per person annually,

according to the Federal Reserve. The second highest is France, with about 16 checks per person. So you can really see how much checks are still a vital part of the US economy. And in the US, check fraud went up nearly 400% last year. Justin, why has check fraud accelerated? The good place to start is what happened right after COVID,

where you had what was another kind of strand of fraud going on as people identified opportunities to steal stimulus checks, to exploit the loan programs that were being extended to small businesses, and all that was in a hope to stimulate the economy and recover from the virus. Eventually those tricks and those processes kind of ran dry. And so you had a group of people in search of a new thing and a new opportunity and they ended up going back to the basis, so to speak.

Checks have been around for a long time. Stealing them has been a challenge that consumers and banks have had for as long a time as that and then what you have had is the emergence of social media and the ability to communicate and compare notes and Teach one another different tricks of the trade in order to get this going again Yeah, this really stunned me in your story that when the fraudsters commit these crimes, they publicize their actions. Yeah, that's actually part of how they get away with this. So the issue is that there are mass volumes of fraudsters that are hitting multiple banks

at a time. So they're in these channels on Telegram and basically sending photos of checks to each other asking for access to fidelity accounts or JP Morgan Chase accounts. And they're having these rapid amounts of communication with each other in real time, getting access to bank account information, and then depositing altered or fake checks into these accounts and moving that money as fast as possible. Take us through the footsteps of the fraudsters. How are they gaining access to people's bank accounts

and their checks? There are two sides of that. With respect to the checks, it's every way imaginable. You could mail a check, put it in your mailbox, and someone steals it. You could be a recipient of, say, a check from the government, and someone steals that. There could be an instance where someone

has access to the blue mail drops outside of post offices and they open it up and they take all the checks. The fraudsters know where to find this stuff. They know where to find this stuff and they know what to do with them no matter what those checks looks like. So in some cases, it could be a blank check which makes life easier for them,

but what's called a washing process, they can remove the amount, they can remove the recipient of that check, and they can rewrite it and direct it to different places. But doesn't it take a couple of days for a check to clear? Would that slow down this process? It does. It depends, though, on where the check is coming from.

There are rules in force that give banks and other financial institutions a limited time in which to make those funds available. And some of those funds are available immediately, others might take a few days. Another thing that surprised us while we were reporting this story is how difficult it is sometimes for banks to investigate these cases of check fraud. I spoke with a woman who last year had a check that she had written to send to her sister stolen. And somebody had done exactly like Justin is describing, they had washed the check,

put in a four in the place of a three, so they added a thousand extra dollars. And by the time that another family member of hers wanted to deposit a check that she had made for the same account, they were told that the check bounced, that there wasn't enough money in that account. There are so many safeguards in the financial world. What is allowing this to happen? A part of it are how good the fraudsters are at exploiting those weaknesses.

There are issues that are specific to banks that they go through. There are the rules that are in place. There's also the difficulties that come with actually trying to track these folks down and, of course, trying to penalize them. In a sense that it is, in many respects, going to law enforcement with a instance of this is akin to going to the police station saying, hey, my bike was stolen, in a sense that, I'm very sorry, sir, that happened,

but what do you want us to do about it? So banks have had to try to do a lot of the investigative work into this on their own, stack up these instances and organize them in ways that give law enforcement something more to work with. But that takes time, takes resources, and as we've seen on these social media platforms,

there is strength in numbers. The more attack a specific institution at the same time, the more likelihood that they're going to be fish that are not caught in the net. What are the banks doing to get ahead of this and protect consumers? Get ahead of the moment that the fraudster breaches the line of security? The responses boiled down to two of them. One is education. So they try to do more to explain to their customers

what risks they take when they, for instance, put a check they've written in the mailbox and discourage them to the extent they can to use checks and to use online bill pay and digital payment systems and things like that that can avoid that scenario. And the other side is deterrence. They have tried to dig in and present more cases to law enforcement.

We saw the Chase civil lawsuits that they filed recently. That's difficult, right, in a sense that there's just such a high volume of this level of activity right now. You haven't really seen signs that the perpetrators are either really slowing down or are no less brazen than they have been for much of the last year. For people who do write checks,

what can they do to try to prevent being a victim of these types of things? There are a few things that they can do. It kind of goes back to what Justin just mentioned, which is the education. So being aware that this is something that's happening, that this is an epidemic that's really sweeping the banking industry and limiting the number

of checks you write. Try to maybe, you know, only send checks to people that you know, or maybe write smaller amount checks rather than huge amounts. It's also recommended that folks watch their bank accounts for unusual transactions. If something like this does happen, you want to catch it as soon as possible so that hopefully the bank or the police department can investigate it. So make sure you're regularly checking your bank account.

That's WSJ's Justin Baer and Oyen Adedoyan. And that's it for your Money Briefing. This episode was produced by Ariana Osborne with supervising producer Melanie Roy. I'm JR Whalen for The Wall Street Journal. Thanks for listening.