The first 4 years of my working life were spent behind the counter of a savings bank learning how a check transforms from promise to pay to real live money. Misconceptions about this process costs millions through identity theft, phishing scams and counterfeit checks. A little inside knowledge can keep your money yours.
A check is a “third-party withdrawal.” It has more in common with the withdrawal slips sitting on the bank counter than it does with actual cash. The difference between the promise to pay and actual payment opens a wide number of holes for con artists to slip through.
Take a look at the front of a check. Every cashable check will have these elements:
On the upper right: transit numbers. They look like fractions and they are encoded a different way on the bottom left hand side of the check in magnetic ink. Look at the transit number on the upper right and see if you can see them duplicated on the bottom. These are key to routing the check through the system for eventual payment. Playing with them is a con artist’s dream. After you finish reading this short article, get a copy of Catch Me if You Can, by Frank Abagnale. His book is an epic journey on manipulating the banking system for personal gain.
Each cashable check will also have the following:
A date: which should be current or under a year old
A payee: Which can be made out to “cash” or must match the name of the account where it is to be deposited or cashed against.
A payment amount: which should be both written and numerical and both amounts should be the same
A bank name
A payee signature
An endorsement on the back
Thousands of “checks” are cashed each year without these elements and they become expensive check returns later. This is a common occurrence with sweepstakes advertisements for example. Much more serious is when these elements are manipulated to the advantage of a con artist.
For example, the date. Many cons manipulate you by asking for a postdated check. In the old days, these were uncashable until after the date written, but today most postdated checks are cleared electronically and will be instantly taken from your account. Furthermore, if you believe that you may be dealing with dishonest people, you have just given them all of your bank account information complete with a copy of your signature. Avoid sending checks to dubious people.
Don’t ever allow a check to “stale.” Stop payments are issued for a maximum of one year. For this reason, banks do not honor year old checks. They may have already been replaced. If your check stales, you will need a new one. But many checks can stale in as little as 30 days. Read your check for restrictions and cash paychecks fast. In the event your employer goes under, you will become just another creditor to line up at the courthouse, and a relatively poor and minor one at that.
The payee name. Watch for alterations. When I was a teller, we had a big laugh at our Halloween party at the moron who stole checks made out to Helmsley-Spear, the big New York real estate concern and tried to pass them off with the alteration, “Helmsley-SpearMINT. Most cons that involve alteration of payees are far more subtle. For example, the common abbreviation IRS is turned into a variety of interesting variations every year to the benefit of the check thief. Never use such abbreviations. Instead, write out Internal Revenue Service and then draw a line to the very end of the field to keep it from being changed after the fact. When you accept a check, examine it for signs of alteration such as obvious erasures and ask for another check. And it goes without saying, write your checks in ink, not pencil.
Your check will have two payment amounts. Why? Because the original amount can be altered to look larger in the numeric field. It is more difficult to do this to the written amount. When you cash a check or accept a check in payment, look in both places to make sure they agree and have not been altered.
A bank name. No bank, no bank account to get the money from. The fractional numbers at the top right of the check and encoded in the bottom in ink tell the clearing system where to send the check so that the money can eventually be withdrawn from the originating bank.
The most common kind of check fraud is to alter these numbers so that the bank does not receive the check within the time left for clearance. The “hold” comes off, the depositor assumes that the check is good and the check bounces several months later. This is the heart of the fraud used in the film and book, Catch Me if You Can.
If you remember this important fact, you will be saved from numerous overdraft fees and out and out fraud: Just because the check has “cleared” does not mean it is good. The check hold is set by the government and is only an estimate of how long it should take for the check to negotiate the clearing system. The government wants people to receive their pay as quickly as possible and a check may clear long before the money is actually received by the bank. If the check bounces later, expect the bank to take it from your account or sue you in court for it.
If you get a check from a person you do not usually deal with, try to cash the check on the bank and branch from which it is drawn rather than passing it through your account. You will know instantly whether there is a bank and money behind it. Even if you are told the check is good, it may be wise to cash it on the payee’s bank and not wait until later or you may find that he has written more checks than he has money for and a check that comes in later will zero out his account before you are paid.
Avoid “jobs” cashing stranger’s checks and forwarding money elsewhere. One of these “job offers” is the inspiration for this article. I applied for a secretarial job and was told that the company would not hire me for it, but that I could accept checks on their behalf as payment for merchandise, forward 90% of the payment to them and keep a 10% commission. Yes, one hundred percent real money from me in exchange for bad checks from them. And don’t forget, now that they have a sample of my check and signature, they can make a few additional withdrawals after I wise up to the scheme.
Likewise, be wary when someone overpays for a purchase and offers to have you deposit the check and send him the difference. You will be out whatever you sold and the “refunded” amount as well. And you may not know about this for months. This caution applied to certified checks, which can be counterfeit as well.
A payee signature. If it is not signed, it will bounce. This happens more often than you think. Also, does the payee have authority to draw on the account? If a spouse tries to write a check on an account where he or she does not have authority to do so, either through a power of attorney or ownership of the account it is no good.
The final element of a cashable check is the endorsement on the back. Is it endorsed by the same person who is named as the payee? Except for checks made payable to “cash” which are bearer instruments, this is a key point. Banks have gotten very wary about checks made payable to a third party and then endorsed over because they cannot be sure that the original endorsement was legitimate. If the check was stolen and then endorsed over fraudulently they will bear the loss.
Likewise, be careful of tricky endorsements as these may render a check useless. For example, knowledgeable bank tellers will refuse to cash any checks endorsed, “Without recourse.” This restrictive endorsement means that the bank is legally required to accept the loss if the check is no good. For this reason, any such check will be not be cashed by a bank. Don’t take these.
Another example is a restriction that requires you to join a club or take out a large loan at high interest in exchange for cashing the check. If you see a weird endorsement, ask for another check or double-check the language to see what you are agreeing to when you cash the check.
Lastly, don’t do what a man of my acquaintance did. He had a running battle with the IRS and decided to alter his check after it had cleared the bank to make it look as if he had paid ten times as much for a home repair as he actually had. Fortunately, he never went before an IRS auditor with the altered instrument or the consequences could have been dire. Every check that passes through the clearing system is encoded with the amount withdrawn on the lower right side of the check in magnetic ink. If you examine your paid checks, you will see that this number is identical to the amount you put on the check except in odd type and written without decimal points.
New cons are born every minute along with the proverbial sucker to fall for them. The list below provides additional resources to help you cope.
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