Annals of Bank Customer Service: We'll take the deposit, but if it's fraud, it's your problem!

My experience in banking industry public relations was also an educational opportunity for me.

Like most bank customers, I always thought cashiers’ checks were “money good” because of the cashiers’ check status. I thought that once you deposited a cashier’s check, and the bank handed over the money by making it available to you, you were free to use that money.

Not really true, and many bank customers have learned this painful lesson over the last several years, as a very insidious cashier’s check scam continues to swindle innocent consumers.

See also, American Bankers Association web site, or FDIC Consumer Alert from 2002, or National Consumer League’s National Fraud Information Center.

Despite all the publicity about this scam, the banking industry stands ready to freeze customers accounts, but has been doing very little to help their customers avoid the fraud in the first place.

It would be very simple to stop this fraud, if the banks would proactively help their customers before taking a fraudulent cashier’s check as a deposit.

Here’s how this fraud works:

You are selling a large-ticket merchandise item, like a car, on an online auction web site. You get a winning bid from a stranger, often a stranger in another country. The winning bidder contacts you, the seller, and explains that they want to ship the item out of the US to another country, frequently in Africa.

The buyer further explains that their international consulting business includes US based clients who owe them money. Would you be willing to accept a US-based cashier’s check sent by the buyer’s client, deposit the money in your bank, keep the amount owed for the online auction, and then withdraw and wire the difference to the buyer?

Most people think this sounds fishy at first — and it is. But they usually agree when an overnight package arrives bearing an official looking cashier’s check drawn on a US bank for some amount larger than what is owed to the seller.

The bank is usually one you’ve never heard of, and the amount of the check is nearly always around $9,800 — just $200 below the $10,000 threshold that would require a bank to report the transaction to the government under bank money laundering laws.

So the unsuspecting customer goes to their bank, and deposits the cashier’s check. Tellers are not adequately trained to realize that there’s a fraud being committed against the customer, and they are usually young, inexperienced, and reluctant to question a customer about a large deposit.

Banks, in a very competitive environment, make “funds available” from cashiers’ checks within 24 hours. But they rarely tell the customer to wait before spending the money.

They never tell the customer that even cashiers’ checks have to go back to the originating bank to be cleared.

They also don’t tell the customer that if the cashier’s check bounces, the customer depositing it is on the hook for the amount of the check.

That’s what the crooks are counting on.

They pressure people to send the money right away, and so the customer withdraws thousands of dollars of this available money, not realizing that the check could bounce, and they could be asked to fork over nearly $10,000 or so.

What’s worse, when the check does bounce, the bank will seize any money in the customer’s account to begin recovery on the bad check, so checks you write to legitimate merchants, like mortgage companies, insurance, etc., will start to bounce. And there’s a bounce fee attached to each of those, too.

Here’s what the banks should be doing, in my opinion:

When a customer comes into the bank with a large denomination cashier’s check, especially one close to $10,000 in value — and their normal business relationship doesn’t include routinely getting checks of that value — the bank employees ought to be trained to say that there is a lot of fraud committed against bank customers with cashiers’ checks, and could they sit with a manager for a few minutes to make sure the check is OK, so they don’t get defrauded.

Then, the bank manager should call the originating bank named on the check to verify whether it is a good check or not. There’s no excuse for not doing this. Every bank in the country has a toll-free number the manager can call.

This simple step would save banks from the reputation damage they get when the news media reports on their heavy handed collection efforts after some low- or moderate-income customer was swindled, and now the bank wants them to give back the money.

But consumers also need to be a little smarter. Any time you transact business with someone you don’t know — especially if they are in another country, verify the authenticity of any documents, securities, negotiable instruments, or checks. If you sell something online and the buyer wants to send you a check for more than they owe you, be suspicious. Before you deposit such a check, pick up the phone and call the bank that issued the check. Find out if the check is good before you make the deposit. If you must deposit the check, don’t ever wire money to the prospective buyer until your bank tells you that the check is completely cleared. “Funds are available” is NOT the same thing as a check being cleared.

The basic piece of advice is that if the proposal sounds too good to be true, it is.

1 Comment on Annals of Bank Customer Service: We'll take the deposit, but if it's fraud, it's your problem!

  1. Hello Mr. Lubetkin,Wow, I really wish I had the opportunity to have read this blog before egaging in EXACTLY what you are warning about!My unfortunate matter involved me applying for a job online with a company called “Surgicraft” located in the UK. Yes, I looked the company up to see if it truly existed… and no, I obviously did not do enough research before entering into a contract with them. However, after reading the contract, I felt safe enough to “take a chance”.My job was to receive checks or money orders at my address and to cash the checks, my commission was to be 10% of each check… and then contact the company for instructions on getting the funds to them via money/wire transfers or checks, which I knew I wasn’t going to be sending checks from my account! (I’m way to smart for that one!) Anyway, I went to cash the 1st and only check I received from the company’s client here in the U.S., and my bank told me that they couldn’t issue the cash to me, but that I had to deposit the entire check in my account. I asked them how long it would take the check to clear and they told me it should by ok by morning, to call the branch and they’d tell me the status of the check. Well, when I called in the morning my specific question to them was “Did the check CLEAR?” Their response was “Yes”. I asked, “Are you sure that it CLEARED and that there isn’t going to be a problem?” Again, their answer was “Yes”. So, I asked, “So, it’s ok for me to come and withdraw the money and there’s not going to be a problem?” Again, their answer was “Yes, you can come in.”Now, the point I am making here is this… I specifically asked if the check had “CLEARED”, not if the funds were “AVAILABLE”. Why was their answer to me not, “The check hasn’t actually cleared yet, but the funds are available if you wish to risk withdrawing before the check ACTUALLY clears.”??? Why did they allow me to come and withdraw funds on a check that they KNEW had not ACTUALLY “CLEARED”, which is what I SPECIFICALLY asked them??? And yes, because they told me that the check “CLEARED” and that I would have no problems withdrawing, I withdrew… and now my account is in the negatives for the full amount of the check!!!Under these specific circumstances, do you think that I may be able to find some way to also hold the bank responsible??? Please do respond.Sincerely,Scammed X2

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