Types of cheque fraud
A focus by banks on identifying lost or fraudulent cheques as they pass through the clearing system means that £9.50 in every £10 of attempted cheque fraud is stopped before a loss occurs. As a result, as of 2015, losses through cheque fraud are at the lowest since records began. However, a minority of fraudulent cheques do get through the system, and it is helpful if customers know what kind of fraud is attempted so they can try to avoid falling victim.
There are three main types of cheque fraud:
- Counterfeit – a cheque that has been created on non-bank paper to look genuine. It relates to a genuine account, but has actually been created and written by a fraudster for the purposes of committing fraud.
- Forgery – a genuine cheque, however, the signature is not that of the account holder. The fraudster has forged the signature by signing the cheque themselves.
- Fraudulently altered – a genuine cheque made out by the genuine customer but it has been altered by a fraudster before it has been paid in (e.g. by altering the recipient’s name on the cheque or the amount. It is no longer a genuine cheque).
Advice on how to avoid being tripped up by cheque scams
Cheques made out for more than the price of the goods being sold
In recent years, organised gangs have targeted consumers selling high-value goods such as cars. If you are selling a high-value item you should be particularly wary of accepting a cheque. If you do accept payment by cheque, our advice is not to hand over the goods until you are sure that the cheque funds will not be reclaimed from you (this happens at the end of the sixth working day after you have paid the cheque into your account).
How the scam works
Typically the gangs involved in this type of scam use stolen or counterfeit cheques. They will offer a cheque or bankers' draft for more than the price of the goods (as ever, anything that sounds too good to be true should set alarm bells ringing) but their excuse may sound plausible. You are then asked to transfer the amount of the overpayment either to them or to a third party three days after you have paid the cheque in when, the fraudster claims, the cheque will have cleared. Of course, the cheque or draft isn’t genuine and, whilst banks do all they can to spot and stop such cheques in the clearing process it is not until the end of the sixth working day after you have paid the cheque in that your bank, or you, can be sure that the cheque funds are certain and the cheque will not bounce and be returned to you unpaid. This information is set out for you in the terms and conditions of your account.
Our advice is: not to accept a cheque for more than the correct price of the goods being sold and only hand over the goods when you have certainty from your bank that the cheque funds will not be reclaimed from you (refer to the terms and conditions of your account).
Adding extra names in the payee line
Another type of cheque scam involves fraudsters altering a genuine cheque by adding an extra name to a payee line – without any of the original detail being removed. Fraudsters target cheques where there is an unused space in the payee line, by adding “re”, “or”, “T/As” or “c/o” followed by a new name in the space left blank.
This type of fraud means that there are no obvious signs of alteration, reinforcing the importance of cheque users drawing a line through all unused spaces when writing out a cheque. It is also important - when writing a cheque to an individual, a business or an organisation - to write their name in full, using a black or blue ballpoint or a pen with indelible ink. This will help prevent a fraudster making alterations to the original details and then opening an account in the altered beneficiary’s name, so that they can pay in the cheque and withdraw the funds.
Our advice is: do not hand over the goods you are selling until you are certain that the cheque funds will not be reclaimed from you (this happens at the end of the sixth working day after you have paid the cheque into your account – the terms and conditions of your account will be clear on this).
Protecting bank customers from cheque fraud
The banking industry introduced the 2-4-6 sterling cheque clearing timescales for customers in November 2007.
As a result, customers can be confident that at the end of six working days after paying a sterling cheque or banker’s draft in to their bank account that the money is theirs and they are protected from any loss, even if the cheque subsequently bounces or if it turns out to be fraudulent. The funds cannot be reclaimed without their consent unless they are a knowing party to fraud. The information on the cheque clearing timescales is set out for you in the terms and conditions of your account. Provided you have kept to the terms and conditions of your account, an innocent victim will be protected from fraud.
There is a range of prevention measures in place at both bank and industry level to tackle cheque fraud. They include:
- A specialist police fraud squad sponsored by the industry– the Dedicated Card and Payment Crime Unit - to target the organised gangs behind payment fraud, including cheque fraud.
- A focus on identifying lost or fraudulent cheques as they pass through the clearing system. £9.50 in every £10 of attempted cheque fraud is stopped before a loss occurs.
- The Cheque Printer Accreditation Scheme (CPAS) which helps combat fraud by requiring that all bank customer chequebooks are printed to the highest security standards. All cheque printing companies must be accredited to this Scheme. Security features on cheques are particularly effective in combating both counterfeit and fraudulently altered cheques. CPAS is managed by the C&CCC.