What Is Deposit Fraud and How Can You Recognize It?

Deposit fraud involves deceptive acts where individuals manipulate financial deposits to unlawfully acquire funds or services. Understanding this type of fraud is important due to its pervasive nature and evolving methods.

Understanding Deposit Fraud

Deposit fraud involves intentionally misrepresenting facts related to a deposit to deceive a financial institution or another party. This deception might concern the value, source, or authenticity of funds. It requires an intent to defraud, a deceptive act, and financial harm or gain.

While deposit fraud is a type of financial crime, its specific focus lies on the act of depositing funds. This differentiates it from other broader offenses like general theft or cybercrimes, as the manipulation specifically targets the deposit process. Perpetrators can be individuals, businesses, or even organized groups. Their targets often include banks, other businesses, or even unsuspecting individuals who become unwitting participants.

Common Schemes

Deposit fraud manifests in various forms. One common method is check kiting, where fraudsters exploit the “float time” between banks. This involves depositing a check from an account with insufficient funds into another account, then withdrawing money before the initial check clears. This cycle is often repeated between multiple accounts at different banks to maintain the illusion of available funds.

Another scheme is check alteration or counterfeiting. Check alteration involves physically modifying legitimate checks, such as changing the payee’s name or the monetary amount. Counterfeiting means creating entirely fake checks. These fraudulent checks are then deposited to exploit the delay in clearing times before the deception is discovered.

Empty envelope deposits at ATMs are another tactic. In this scheme, a fraudster deposits an empty envelope or one containing less than the declared amount into an ATM. The perpetrator then attempts to withdraw funds against this false deposit before the bank verifies the contents. While modern ATMs often scan contents directly, older machines can still be vulnerable to this method.

Remote deposit capture fraud uses mobile banking applications. Fraudsters might deposit the same check multiple times using a mobile app and then attempt to cash the physical check elsewhere. This can also involve depositing counterfeit or altered checks through mobile channels, exploiting the reduced physical scrutiny. The convenience of remote deposit creates opportunities for such fraud.

The use of stolen or forged checks is common. Checks stolen from mailboxes or other sources are used, with fraudsters often forging signatures or endorsements to make them appear legitimate. These stolen checks may also undergo “check washing,” where chemicals are used to erase original details like the payee or amount, allowing new fraudulent information to be added.

Recognizing and Responding to Deposit Fraud

Recognizing the signs of deposit fraud is important for individuals and businesses. Unexpected checks, particularly those for higher amounts, are a common red flag. A frequent scam involves requests to deposit a check and then immediately send back a portion of the funds, often through irreversible methods, before the original check clears.

Suspicious checks may also exhibit physical irregularities such as misspellings, unusual fonts, or an unprofessional appearance. Discrepancies between numerical and written amounts, or incorrect routing codes, can also indicate a fraudulent check. Pressure to deposit and withdraw funds quickly, or sudden, unexplained deposits into an account, should also raise concerns.

If deposit fraud is suspected, immediate action is needed. The first step is to contact your bank immediately. Provide them with all relevant details, including your account number, transaction information, and any suspicious check details. Do not spend or return any funds from a suspicious deposit, as the bank will likely reverse the fraudulent transaction.

Gathering all related documentation, such as images of the suspicious check or any communication with the sender, is advisable. Banks place holds on deposited checks to verify funds. If the bank determines the check is fraudulent, they may not release funds, or if funds were already made available, they will be debited from your account. While your bank may advise filing a police report, contacting your financial institution is the primary immediate step.