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Risks Associated with Using Paper Checks

By Edited Aug 27, 2016 0 2

As financial transactions continue to go digital, bank checks have become somewhat antiquated. A growing number of people today are now taking care of most of their banking needs online. It's fast, convenient and, while there are still risks, security has become increasingly more important to organizations to protect data. As a result, it has become more common for consumers to pay their  bills through the Internet.

That being said, for a variety of reasons, paper checks have not gone extinct just yet. Both online banking and traditional paper banking have its pros and cons, and one of the cons of using paper checks is there are many aspects of using paper checks which may put you at risk for fraud.

With identity theft and other financial theft continuously on the rise, thieves relish in the opportunity to use paper checks to their advantage.

A few of the ways they’ll attempt to defraud you through paper checks include obtaining your:

Name and Address

Checks traditionally have contained personal information such as full name and address. If your checks have this information printed on them, thieves can really do damage with your good name once they get their hands on this information.

While there are certainly many ways thieves can grab a name and an address that have nothing to do with banking, but by obtaining the information off a check, it also scores the thief other valuable information. For instance the thief now also has the name of the bank you use and what your signature looks like, along with your account number.

Signature

Today signatures are much easier to forge thanks to digital imaging being used more than paper signatures, but the traditional signature is still very valuable. Thieves can get your signature off a check and copy it well enough to commit fraud.

Just think of the many ways signatures are required for conducting transactions. Credit card applications, loans, other contractual purchases are just a few of the many ways signatures are needed. A thief really intent on committing fraud may even try to collect enough information about you to obtain a birth certificate, Social Security card or driver's license in your name.

This would take a bit of work since he or she would have to obtain supporting documents too, but it all starts with tidbits of information. Once these details are obtained, by using your signature, the savvy thief can gain access to the more sensitive data desired in order to steal your entire identity.

Checkbook
Credit: Amanda (adotmanda on Flickr) / CC by 2.0 with Attribution

Your checks contain a lot of personal information that thieves would love to nab

Bank Account Number

Thieves will not only know how to use your name and address for fraud, but as a bonus, the bandit also has your checking account number taken right off the front of the check. Every bank has a series of encoded numbers along the bottom of checks which includes the bank routing number and individual's checking account number.

Along with your signature, a thief may attempt to make withdrawals by carefully forging your signature on withdrawal slips or use your bank information to commit other kinds of fraud.

Memo Area

This is perhaps one of the most risky aspects of using paper checks. Many businesses require customers to put sensitive information right in the memo portion of the check. This may be an account number, phone number, driver's license number or even a Social Security number.

Unfortunately, many businesses or agencies still attempt to use Social Security numbers as a primary key (meaning unique identifier), in their databases to file information on customer accounts. This can lead to other issues because a check changes so many hands through the processing cycle.

Even if customers do not note this information on the check, sometimes employees write down the personal information in order to link the payment to a customer. This can typically happen in organizations that use older databases which do not provide easy ways to link payments and when the organization's batches are reconciled, adding a notation on checks make this an easy way to help balance the accounts, but can do harm to the payer.

Ordering Checks

Checks can be stolen out of mailboxes and used by a thief. Due to so many transactions being processed digitally, many businesses rarely check carefully for signatures these days. (Just consider how often does a merchant actually check your imaged signature against the physical credit card these days?)

That being the case, imagine how many checks could be used to purchase money orders or other expenditures before the owner realizes this or her checks are being used. Many stores and merchants have stopped accepting checks for this very reason.

Tips to Protect Yourself From Fraud:

Paper checks are still a viable means of making payments, however one can't help but wonder how much longer their lifespan will continue. When transactions are done electronically, most of the time some sort of digital footprint is offered. If you do use paper, be sure to:

  • Always reconcile your checking account regularly
  • Call your bank ASAP if something seems remiss 
  • If something seems wrong, put a hold on your account immediately pending further investigation
Writing a check
Credit: Michael (Hello Turkey Toe on Flickr) / CC by 2.0 with Attribution

To detect fraud more quickly if it occurs, be sure to keep track of your transactions and reconcile your checkbook routinely to make sure nothing is amiss.

While the digital world has its risks as well, it seems paper is perhaps increasingly becoming the less secure way of doing personal transactions. Researchers at the Federal Reserve of Philadelphia said in 2014, it is estimated paper checks may disappear from U.S. use within 12 years. According to Information Intersection,

“In a recent poll, 38 percent of respondents indicated that they “never” write personal checks.  In fact, the new trend in personal banking is the checkless checking account." 2

However, online and mobile transactions do carry its own set of risks as well. According to the National Consumers League (via Fraud Avengers 4), mobile check deposits are the “new playground” for fraudsters. And this means whatever money is scammed going in, can likely be scammed going out.

Bottom line is these days thieves will use any means they can to obtain data, be it digital or out of your trash. Be vigilant and pay attention to your accounts. The quicker you catch any funny business, the easier it will be to limit the damage.

[ Related reading: How to Avoid Telephone Banking Scams ]

Fraud expert Frank Abagnale (and ex-fraudster) notes how technology has made it easier for thieves. Abagnale is the subject of the book and movie "Catch Me if You Can".

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Comments

Apr 22, 2015 12:34pm
javrsmith
I saw that England is going to stop using these instruments fairly soon. Too bad electronic transactions are not as cheap. I mean, we pay fees to use electronic transfers which actually save the banks money over what cheques cost them. (Cheques are checks in Canada.)
Apr 24, 2015 3:11am
LeighGoessl
I hadn't realized England was phasing them out.
About the transfers, on a related note, I remember when distance learning first went computerized. Colleges were charging all sorts of fees to students to use the technology. Now it is standard. I wonder if they still charge the same fees? Even for "traditional" classes on campus, many instructors require their students to use the same system as part of the course.

Thanks for reading and commenting!
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Bibliography

  1. "Misused Checking Accounts." U.S. Federal Trade Commission. 14/04/2015 <Web >
  2. "The Persistent Paper Check: Why Are Businesses Resisting E-Payments?." Information Intersection. 08/04/2014. 14/04/2015 <Web >
  3. "It’s Official: The Internet Killed Traditional Checking." GO Banking Rates. 03/03/2014. 14/04/2015 <Web >
  4. National Consumers League "Mobile check deposits new playground for fraudsters." Fraud Avengers. 14/04/2015 <Web >

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