What is ACH Fraud?
The Automated Clearing House, or ACH, is the system that manages the transfer of all electronic funds between bank accounts through the use of a batch processing system. ACH fraud, simply put, is when a transaction occurs that is NOT authorized by the bank or individual. Each day the ACH Network grows and expands as more people are using the system to purchase goods and make transactions. As it grows, so too does ACH fraud. In fact, ACH fraud, because of the relative ease in which scammers are able to dupe their victims, is becoming a general concern for all individuals.
Through October of 2009, it was estimated that nearly $100 million had been lost through scams involving the ACH network. The National Auotmated Clearing House Association, or NACHA, is the governing body of the ACH Network and they are currently reporting new reports of ACH fraud each week. All that a fraudulent criminal needs is your bank account number and your banks routing number and he/she can gain access to your account and take thousands of dollars before you even realize it.
How ACH Fraud Happens
As mentioned above, all that a scammer needs is your bank account number and your bank's routing number. Criminals can obtain this information through a couple of different ways, but, typically, they target their victims through phishing email scams. The victim is tricked into opening an email sent by the scammer. Once the victim opens the email, malicious malware software is placed on their computer and the fraudster is able to place keylogging software on the victim's computer. Keylogging software allows the fraudster access to everything the victim types on his/her computer. Eventually, the criminal will be able to steal online bank account passwords and gain access to the victims bank account information. They then use that information to transfer money out of the victim's account into a safe location. This can happen so fast that the victim doesn't have time to know what's happening.
Almost all ACH fraud revolves around email or other types of phishing schemes. In one scam targeting businesses, the criminal will send an email from the IRS with a subject line of "Notice of Under-reported Income." Once the email is opened, a Trojan virus is placed on the business' system. The criminal then steals all of the bank information he or she needs and begins transferring money out of the accounts. Usually, they hire multiple people where they can send the money. These people are known as "mules" and their main objective is to get the money and pass it on to the criminal.
Who is at Risk and How Can ACH Fraud Be Avoided?
ACH fraud has been increasingly more popular amongst scammers. This is because it is a fairly easy scheme for criminals to pull off and in some instances it can even go undetected. The most common targeted victims for ACH fraud are usually people or businesses who have accounts at local community banks and credit unions. Sometimes, the victims are those who use third party ACH operators to process ACH transactions. Most often, the targeted bank account holders are small to medium sized business owners, but can even be court systems, school districts and other public institutions. However, any individual with a bank account can be at risk for these kinds of schemes.
The best way to detect and prevent ACH fraud is to monitor your transactions more carefully and be aware of any suspicious emails sent your way. While consumers have the benefit of being able to notify their financial institution of fraud within 60 days of the incident, businesses sometimes have as little as a day. This means that ACH transactions must be monitored on a daily basis. Businesses can even set up ACH blocks, which automatically return ACH debits and credits that directed to a particular account, or ACH filters, which automatically returns all ACH items, except those that are pre-authorized. In the end, the failure to monitor ACH transactions can have leave you susceptible to scammers and fraudsters who can wreak havoc on your bank accounts. Take the necessary precautionary steps and monitor your financial activity more closely.
Other ACH Related Material
- The ACH Network
- ACH Transaction Definition, ACH Transaction Processing & ACH Transaction Fees
- The Automated Clearing House