INDUSTRY U P DAT E S
RISE IN CHECK SCAMS
Raises Lots of Questions Without Easy Answers by Johnathan D. Horton
A
rkansas businesses have seen a dramatic rise in check scams. While taking various forms, these
transactions have real consequences for local banks and businesses because someone is ultimately responsible for the funds taken. However, determining who is ultimately responsible for the loss may be a complicated endeavor. Most scams begin with stolen mail. Thieves have found creative ways to obtain mail, which they search for cash or checks. Thieves then either deposit the checks themselves, cash them, or sell them to other criminals in an illicit marketplace, often by simply uploading a photo of the check. Enabled by technology that lets them either alter a legitimate check to change the amount, payee, and other details, or that lets them create a counterfeit check containing legitimate account information, the various scams employed all work because the check looks real. Technology has made it easier for scammers to generate altered or counterfeit checks that are 28 • WINTER 2022
virtually indistinguishable from legitimate checks. Before a bank determines a check is altered or a fake, the scammer has usually disappeared with the money. Numerous variations on the schemes exist. Which scam is involved, however, may impact the rules that apply and may affect who is ultimately responsible. So, we look at the basic rules of liability. Generally, the bad actor is liable for his or her acts. The UCC allocates losses among three different parties (1) the customer on whose account the check is drawn (the “drawer”), (2) the bank holding the account from which the funds are drawn (the “drawee bank”), and (3) the depository bank, i.e., the bank that accepts the check for payment. The UCC rules place responsibility on a party with the idea that they can then pursue remedies against the bad actor. Unfortunately, the reality is that the bad actors may be difficult to find, and may not have any assets that can be applied to satisfy a judgment, so recovery from a bad actor is far from ideal.
