The latest consumer scam involves an interesting combination of legal issues, cutting across payment systems and consumer law. The scam takes many forms and is very widespread, but basically involves a counterfeit cashier’s check.
Thief gives consumer a large cashier’s check, telling consumer to cash it, keep a part for himself, and send the rest to the thief. It is often used in connection with automobile sales or apartment rentals. For example, thief will appear in town to rent and apartment saying he just moved from another city. [This also is often done by mail from a foreign city] Thief agrees to pay a large deposit with a cashiers check, representing “all the money I took from my account when I closed it to move here.” Thief asks the landlord to “cash the check to pay for the deposit, keep what he is entitled to, and send me a personal check for the rest.” The same scheme works if the consumer is selling a car or engaging any transaction involving a large sum of money. It also is used in a slightly different form for “work at home” schemes.
Due to the complexities of our banking system, the consumer (the landlord or the seller), will have access to the funds represented by the check before the check is actually paid. The consumer will wait until the funds are available, assume the check has been “paid” and issue the smaller check (or sometimes give cash) to the thief, who promptly cashes it at the bank. The counterfeit cashier’s check ultimately bounces and the consumer is responsible to the bank for the full amount. Rather complicated, very effective and becoming more and more common.
The legal issue is whether the consumer is out of luck. A quick review of relevant law suggests he or she is. Under our payment laws, the check has not been “paid” and if it is returned the loss falls on the consumer. The consumer, however, may have several ways to throw the loss on to one of the banks. First, my opinion is that our “final payment” rules place the loss on the bank that the counterfeit check is drawn on if the bank does not promptly return it. The counterfeit check should be treated as a “forged drawer’s signature,” and subject to the prompt return rules. The consumer may also have rights against the bank in which the check was deposited under state consumer protection laws. In many cases, the bank will state that the check “has been paid,” or “has cleared,” a fact that is not true and upon which the consumer relies. To the consumer these terms mean the check is good, and they should be interpreted consistent with the consumer’s understanding. The most interesting question is whether a bank has some duty to the customer take steps to inform the consumer of the situation. For example, assume the customer rarely writes or deposits checks in excess of a few hundred dollars. Does the bank have any obligation to the customer when the consumer deposits a $10,000 cashiers check and then writes a check for $4,000?
I have not seen any case law discussing the counterfeit cashier’s check problem, but expect that it will soon appear. Any comments?