Many of the same problems bedeviling banks since the 1990s – counterfeit checks, forgeries and other types of altered payments – affect banks and credit unions today, including smaller institutions.

The plan seemed like an easy way to earn money. Anyone who put a Coors Light advertisement on their cars would get paid to drive around. Those who signed up received more money than they were due, so they were told to send excess amounts in checks or money orders. These funds would cover expenses at Coors’ different departments, participants were told.

What seemed like easy money was, for bankers, a familiar story of check fraud involving beer rather than items sold on Craigslist.

“We spread information about this latest scheme to our staff right away,” said Patty Ostrout, a senior vice president of retail banking at North Brookfield Savings Bank. “We try to educate customers and encourage them to learn about these schemes.”

Bank fraud today is often associated with massive data breaches, hacked passwords and online phishing schemes. Yet for many banks and credit unions, check fraud has become one of the top fraud threats they face, creating challenges for institutions that lack resources available to large banks.

Resurgence in Check Fraud

Given that fewer people and companies write checks today, the prevalence of check fraud is in one sense surprising, said Shirley Inscoe, a senior analyst with Aite Group, a Boston-based consulting firm.

“Check volumes are indeed diminishing, but check fraud is alive and well,” said Inscoe, who works in the firm’s fraud and AML practice. “We thought we’d moved beyond it, that fraud was online or mobile, and now all of a sudden check fraud has seen a huge resurgence.”

Many of the same problems Inscoe encountered back in the 1990s – counterfeit checks, forgeries and other types of altered payments – affect banks and credit unions today, including smaller institutions.

Aite Group conducted an online survey of 46 U.S. credit union executives earlier this year. The responding institutions ranged in size from $250 million to $5 billion in assets.

Executives were asked about their top three fraud threats. Check and debit card fraud were the top challenges, with each cited by 59 percent of the credit unions. Credit card fraud was next with 43 percent. Faster payments and employee fraud were cited as the least threatening, with 7 and 2 percent, respectively.

“Many of the solutions that institutions are using are two or three decades old, and they just aren’t providing the value that they used to. They’ve not been necessarily kept updated, or there haven’t been new investments made to prevent fraud, and I think that organized crime has realized that.” — Shirley Inscoe, senior analyst, Aite Group

Despite the resurgence of check fraud, most survey respondents reported that overall fraud losses remained at an acceptable level, with 41 percent responding that fraud losses were rising but still at an acceptable level, and 24 percent reporting that losses were under control at an acceptable level.

But for another 22 percent, fraud losses continued to grow, with half scrambling for solutions to contain them and the other half pointing to the absence of investment in technology solutions.

Hackers and phishers may dominate the headlines in bank fraud cases, but check fraud represents the largest concern for many small institutions

Inscoe, who authored a report on the survey, said that while larger financial institutions invest in technology to combat fraud, credit unions and community banks often lack resources, a fact understood by those committing fraud.

“Many of the solutions that institutions are using are two or three decades old, and they just aren’t providing the value that they used to,” Inscoe said “They’ve not been necessarily kept updated, or there haven’t been new investments made to prevent fraud, and I think that organized crime has realized that.”

Among the positive signs Inscoe found in the survey was that more credit unions said core processors would work with them on new fraud solutions compared to the past, when financial institutions reported difficulties.

Even when community banks and credit unions have resources to invest in technology, the time needed to negotiate contracts and implement the systems could mean delays of several months to two years before institutions can benefit, Inscoe said.

Staff Solutions

Check fraud causes the most concern at North Brookfield Savings Bank, said Ostrout, adding that fraud protection tools have made online banking secure and safe for their customers.

The bank’s staff are a key tool for fighting check fraud.

“The benefit that we have is knowing our customers and knowing what they normally do,” Ostrout said. “Our staff is very well-trained.”

Credit unions and community banks often point to customer relationships as their strength, and the staff at North Brookfield Savings is trained to know customers’ banking patterns and question behaviors or transactions that stray from the pattern.

Bank employees are also taught to recognize behaviors of those who commit fraud. Since checks over $5,000 have a longer hold, employees are trained to watch for checks just under this amount. Since fraudulent checks can be drawn from legitimate bank accounts, they can be difficult to detect. Employees are encouraged to talk to supervisors, managers and even Ostrout herself with any doubts about a check.

“I would rather protect everyone and take a few minutes of my time,” Ostrout said.

Diane McLauglin

Ostrout uses FDIC literature and information from the American Bankers Association to stay informed about fraud issues. The bank also belongs to a security group with other banks and local police departments to share information and best practices.

Keeping customers informed about fraudulent schemes is another tool the bank uses. North Brookfield Savings recently held workshops to help older adults understand fraud prevention.

“The fraudsters have a great way of intimidating seniors especially,” Ostrout said. “They can be widows, and they’re living alone, and they’re anxious to talk to people.”