Unwary consumers duped by counterfeit check scams

If it looks like a check, has watermarks like a check, and cashes like a check ... it still might not be a check.

Just ask Francis George. The retired home remodeler in Darby, Pa., deposited a $4,000 cashier's check he received for a 1993 Ford Thunderbird that he had advertised online for only $1,000. After he was told by his bank that he had access to the money, he wired $2,800 to what he thought was an overseas car shipper, attempting to do a favor for the buyer.

The buyer turned out to be a con man: The check was a fake. Now his bank, Wachovia, is holding Mr. George responsible for the money – money he never would have wired in the first place, he says, if the bank had not told him that he would have access to the funds before it verified that the buyer's check was good.

Check scams like this one are becoming more common, and while some financial institutions are taking a proactive approach to warning their customers of the dangers, others may not tell account holders that after they make a deposit they may have access to funds before the bank can verify the check.

This situation leaves unwary consumers in a jam since depositors, not the bank, are responsible for bad checks and associated fees.

Banks say they are caught in the middle. Federal law requires them to give customers quick – often next-day – access to funds, but it may take several weeks to verify that a check is good. An explanation to customers that they have access to funds before a check clears could be seen as an attempt to skirt the law, says Nessa Feddis, senior federal counsel for the American Bankers Association (ABA).

Consumers, she says, are in the best position to know whether a payment they've received is legitimate, since they know the details of the transaction.

"There are normally red flags," says Ms. Feddis. "The broader message is almost back to [what you were told] in third grade: 'Don't trust strangers.' "

Wachovia bank's fraud detection systems catch more than 90 percent of the 500 or 600 fake checks its account holders deposit each month, says Brian McGinley, Wachovia's director of loss management, preventing potential scam victims from wiring the money away. And, he says, customers are warned about the risks of check scams in the occasional mailing insert or in-bank flyer.

But ask a Wachovia employee, and you may not learn that access to funds doesn't necessarily mean a check is good. A representative answering Wachovia's customer service line and an employee at a Wachovia branch in Manhattan both told this reporter that the bank makes sure checks are good before giving account holders access to the money. At the Manhattan branch, the representative said that up to $100 might be advanced, but otherwise the bank checked to make sure the funds were good before giving customers full access to them.

Wachovia spokespeople say that they can't comment on conversations they weren't party to, but that representatives are trained to give out correct information, and they will follow up with their front-line representatives.

Consumer advocates contend that banks could do more to inform account holders about the risks of check scams. Federal law requires that banks tell consumers their funds are available, says Susan Grant, director of the National Consumers League's (NCL) fraud center, but nothing prevents a bank from telling customers that it may not have verified that the check has been honored.

"It's a preventable crime, if you can catch consumers when they're depositing the money," says Ms. Grant, who has worked with the ABA on consumer awareness drives. "It just requires an explanation."

In the meantime, con artists are increasingly able to prey on consumer ignorance. Fraudulent-check schemes are the most common telemarketing scam and the third most common Internet scam, according to the NCL. And they're growing – in the first three months of 2007, check scams accounted for almost half of the NCL's telemarketing complaints, up from less than a third in 2006; and accounted for 15 percent of the Internet scams, up from 11 percent in 2006.

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