Intelligence Report | November 2026 - Flipbook - Page 7
THE PERSISTENT PROBLEM OF CHECK FRAUD
By: Laura Alix
Check fraud may be the most stubbornly persistent
form of fraud the banking industry faces today, even
as consumers increasingly move away from checks in
favor of electronic payments.
Check fraud has exploded in recent years. Between 2021
Palmera Consulting. Criminals can readily buy check stock
paper, magnetic ink and printers at many office suppliers;
they can also buy data corresponding to real checking
accounts on the dark web, she adds.
The issue has even led to some infighting in the industry,
and 2022, suspicious activity reports filed by depository
pitting small banks against their larger peers. In some cases,
institutions relating to check fraud more than doubled, total-
fraudsters steal checks drawn on smaller banks, alter or
ing over half a million, according to the Financial Crimes
copy them, and deposit those checks to dummy accounts at
Enforcement Network.
larger or digital-only banks. By the time the originating bank
Check fraud filings have maintained roughly that rate in
discovers the fraud, the cash has already been siphoned away
the years since; the agency reported 318,031 filings related
from that dummy account. And smaller banks often report
to check fraud through August 2025, roughly the same num-
difficulty getting reimbursed for their losses by the bank that
ber it posted for that period the prior year. Meanwhile, check
accepted the phony check.
usage made up just 3% of consumers’ total share of pay-
Certain technologies can help banks manage and stem
ments in 2023 and 2024, down from 4% in 2021 and 2022,
check fraud, though they do have their limits. One popular
according to the Federal Reserve’s 2025 Diary of Consumer
fraud prevention tool is Positive Pay, which matches checks
Payment Choice.
presented for payment with those entered into a client’s
Check fraud “remains a problem because it’s been estab-
check register. Of course, Positive Pay relies upon clients
lished for so long,” says Scott Baranowski, a principal in the
entering and updating that data consistently, and that func-
advisory group at Wolf & Co. “Everyone understands what
tion has to be properly staffed within the bank.
the solid lines of demarcation are, and the bad actors are
able to exploit those lines.”
Ninety-four percent of bank executives and directors who
“Positive Pay is good, but it’s only as good as the data
that they get, and then it’s only as good as the information
that we’re checking it against,” says Felix.
took part in Bank Director’s 2025 Risk Survey said their
Artificial intelligence and machine learning can help
bank or its customers had been directly impacted by check
detect check fraud, says Andy Lapp, senior director of fraud
fraud over the prior 18 months. That compares with 70%
and managed services at CSI. His firm uses those technolo-
who reported problems with elder financial exploitation and
gies in its newest check fraud detection tool for commercial
61% who dealt with digital payments fraud over that same
clients. The program develops a profile for each client based
time frame.
on the way that business has historically written checks. For
The recent boom in check fraud took root during the
instance, a particular client may always spell out the month,
Covid-19 pandemic, when criminals started stealing mail in
rather than numbering it. The goal is to catch fraudulent
greater numbers in search of government stimulus checks
checks in real time, and Lapp reports early success with
that they could fraudulently cash. It’s also become easier for
around 20 of the company’s bank clients.
fraudsters to alter and forge checks, and create counterfeit
checks, says Sarah Beth Felix, founder and president of
“With AI and machine learning, you can do a lot more.
We can shrink the check digitally and count the pixels on
THE FRAUD MENACE: PROTECTING YOUR BANK | 5
