Counterfeit Check Scam

by Richard Alderman

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?

Comments

[Shawn Mosch]

This is the type of scam that my husband and I became victims of in 2002. It is so sad that this problem is still going on, and that there is very little that can be done to stop these scams and to protect the scam victims.

Shawn Mosch

[Richard Alderman]

Unfortunately, these scams continue and an increasing number of people are taken advantage of. The simple rule is: Don't ever give someone cash in exchange for a check until your bank will verify that the check has been "finally paid."

[John]

I was taken by the "secret shopper" scam. I was told I was hired and they sent mE A CHECK FOR $2,698.98 I was told to shop Wal Mart and spend 250.00,then write a report and send it to them, which I did. The next day theytold me to shop Lowes and spend 175.00. When i went to the bank to get the 175.00 the banks said the check had been conterfeit. The phone number I had beeen calling them on was no longer in service. I had been out of work for sometime and this devastated me.

[A & R]

We too have been victims of the counterfeit check scheme, with a different twist. In our case, there was to be an wire transfer of funds for the purchase of our vehicle and an additional amount for us to send to the shipper of the vehicle. I called my bank,Bank of America, and told them I was to do a wire transfer to a gentleman in GA, so he could ship the vehicle over seas. (Selling our vehicles over seas is a legitimate lucrative business). We seen the funds were in my account and called customer service. The representative stated the funds were available. Up to this point, we thought this was a legitimate wire transfer. We went to our local WalMart an sent a MoneyGram to Smyrna GA. We did a little shopping and as I was checking out, my card was denied. We went home and called the bank immediately. I was told my account was frozed due to a counterfeit check. I told the representative and the security department that it wasn't a check, that it was a wire transfer. Come to find out, the person who was to purchase my vehicle sent an over night package to my branch bank which contained a check. This was never told to me by the bank, even when I called to verify the funds were in fact available to me. What seems odd to me now, and also to detectives, FBI and others is that when this check was received and posted to my account, there was not enough funds in there to cover the $4900 check. And stranger yet, I had only opened the account 3 weeks earlier. Myself and others all have made the comment that the bank should be responsible since they made it available to me when I did not have enough funds to cover the check and also since I did not have a long standing relationship with them. Now, my fiancee has been effected by this because I had transfered her money to pay some utility bills with. The bank has since deducted the money I transfered to her, causing a negative balance. We are now having to call our utility companies and doctors and make arrangements with them since the bank has reversed payment on them all. As far as we are concerned, there should be a class action lawsuit brought against these banks that do not take the time to do their job and verify funds for a check, before posting it to an unsuspecting consumers account...causing pain and suffering.

[scammed]

I also was taken by "The Secret Shopper" scam. My bank did not even warn me about the cashiers check even possibly being counterfiet, although the teller was looking at me weird, they had no problem cashing the check and sending me on my way. I did what I was instructed to do, finished all my "assignments" one of them being a moneygram. The check later bounced, so i called my bank to find out that the check was counterfiet and I was responsible for paying that money back. To make a long story short I feel like i have been scammed twice, and one of the times is by a reputable buisness. Correct me if I am wrong but apparently the banks know this is going on but they have no counter-measures in place to protect the consumer, does that not constitute gross negligence on their part? I know ultimately i'm to blame because I am the consumer and i should be ashamed of my-self for thinking that the bank would take responsibility for their failure to protect their coustomers or at least partially.

[KIM]

Recently we were made victims of counterfeit cashiers checks.

I received a letter in the mail stating that I was selected from Job Bank to become a "Mystery Shopper." The letter included a cashiers check in the amount of $2395.00.
My initial reaction was that this was a scam. I took the cashiers check to our local credit union and I specifically asked them, (the tellers) if the cashiers check was legitimate or a forgery. Two tellers were involved in this process. The first teller stated that I could call the number on the check or they could call on my behalf. The first teller instructed the second teller to call the number that was on the check. After calling the number that was listed on the check the teller informed me that the check was good. She gave me the cash and I took the money to the local Walmart and purchased a MoneyGram as I was instructed to do. I also took in a second check that was sent to me via FedEx from the same company. This check amounted to $2970.00. I was able to retain a total of $785.20 for a 2 hour Evaluation Training for the two checks.
The manager from the bank contacted us on the 18th of January 2007 stating that the first check was COUNTERFEIT. She demanded that we refund the money and/or sign loan papers; and told us that she had froze our checking account. We were victimized not once, but twice.
We went to our credit union, in good faith, for authentication of these checks. They DID NOT follow NCUA protocol when looking into these cashiers checks. May I add that neither check contained a signature from the sender. We did not have the money in our account to cover either one of these checks and they were fully aware of that. The money was sent to Canada and I have all the receipts as evidence. The FBI and the Secret Service are involved because there are thousands of victims like us who have been held liable from their banking institutions. We live on a modest income of $34,000 with a family of 4.

[Howard Strong]

I have been contacted by numerous consumers who have be taken by this scam. 'Til now I have told them there is nothing to be done. I would love to see a fully articulated legal theory which could be used to get some relief for them. I do note that often the consumer's story includes warnings from the bank about how it could be a scam. But, human avarice being what it is, sometimes the consumer ignores the warnings as an effort to keep them from making money.

[Richard Alderman]

The rules of the UCC are pretty clear that as a general rule the consumer loses in this case. I think this is why this scam is becoming so popular. Unlike identity theft, where the loss is placed on the business and it has an incentive to prevent it, counterfeit check loss is on the consumer. There is no incentive for the bank to take any steps to prevent it. I think a few successful lawsuits against banks would make this a harder scam to accomplish.

[Brian Wolfman]

Yeah, I have a comment. I'm ignorant of the banking law doctrines to which you are referring. My gut reaction, though, is - - you gotta be kidding: The consumer can't possibly be out of luck. On the other hand, when I read your post, I was reminded immediately of studying (or, to be honest, not studying) for the commercial paper segment of the Arkansas bar exam, deciding that my time would be better spent studying another subject (or, actually, finishing Kareem Abdul Jabbar's autobiography, which, as part of my procrastination strategy, I was then reading at the Macon, Georgia public library), and planning to respond to the commercial paper exam question with a bunch of legal-sounding words built around the maxim "the bank always wins."