Emerging Threats: Check Theft and Fraud on the Rise

Consumer preference for digital payment methods has caused a steady decline in check usage. Over the last 30 years, the Federal Reserve has seen an 82% plunge in the number of checks collected annually. Even with this reduced check volume, there has been a significant increase in mail theft related check fraud. This is especially concerning because, in addition to the financial loss involved, checks contain valuable personal information that can be exploited.¹

“Despite the declining use of checks in the United States, criminals have been increasingly targeting the U.S. Mail since the COVID-19 pandemic to commit check fraud,” the Financial Crimes Enforcement Network (FinCEN) wrote in a 2023 alert.²

Recent Mail Theft and Carrier Attacks

There were 38,500 high-volume mail theft incidents from receptacles reported in FY22 and more than 25,000 reported in just the first half of FY23.³ Attacks on mail carriers have also surged. In FY22, nearly 500 United States Postal Service (USPS) mail carriers were robbed while on the job. This continued into 2023 with over 300 incidents reported in the first half of FY23, per a May 2023 notice from the USPS and the United States Postal Inspection Service (USPIS). The National Association of Letter Carriers has been holding rallies across the country, protesting for better protection and sharing stories around attacks. To help combat these crimes, many of which included accosting carriers at gunpoint, law enforcement officials made over 600 arrests from May to October 2023.⁴ In addition, bills have been introduced in both the Senate and the House that would give the Postal Police authority to protect letter carriers on their routes.⁵

Why is Check Fraud on the Rise?

The answer lies in its comparative simplicity for fraudsters. Checks are easy to alter, making them an attractive target. In an interview with Fox Business, Joe Bernardo, Global Head of Fraud and Claim Operations with Wells Fargo, stated, “Credit cards and other forms of digital payment systems have been routinely updated and modified with security enhancements, providing an extra layer of protection that paper checks don’t have."⁶

While generally perceived as a low-tech crime, certain instances of mail theft involve sophisticated criminal groups that infiltrate postal distribution centers. These groups use fake IDs and establish sham businesses to streamline check deposits. Criminals may further exploit their victims by leveraging the personally identifiable information (PII) found in the stolen mail for future fraudulent schemes. In October of 2022, the California Department of Justice reported the arrest of 56 individuals involved in a mail theft, postal fraud, and check washing operation that began in 2018 and resulted in the theft of nearly $5 million from a total of 750 people. Investigators believe the money was then used to fund other criminal operations.⁷

What is Check Washing?

Check washing⁸ is a form of identity theft that involves using a solvent to remove existing ink, enabling criminals to change payee names and dollar amounts for fraudulent deposits. Some washed checks are also sold online on the dark web.

According to FinCEN, Bank Secrecy Act reporting for check fraud has increased significantly since 2020. The number of potential check fraud Suspicious Activity Reports (SARs) submitted to FinCEN from financial institutions increased 23% in 2021 over those filed the previous year. In 2022, there were 680,000 potential check fraud cases reported, nearly doubling the figure from 2021.⁹ With almost 450,000 SARs reported as of the third quarter, 2023 seemed to be on track for comparable check fraud figures.¹⁰

Keeping Policyholder Data Safe with Strong Risk Management

Data and payment security are critical concerns in an era marked by identity theft, fraud, and various other vulnerabilities. Insurers face immense pressure to safeguard policyholder data and meet compliance requirements. One Inc takes data protection and cybersecurity seriously. We adhere to industry-leading security requirements that reduce your risk of exposure, simplify your network security and compliance practices, and help to protect your policyholders from payment data theft. These measures include the use of security defenses, encryption, dual-factor authentication, and tokenization. And as a Nacha Certified Third-Party Sender, we have met rigorous standards for risk management and compliance, demonstrating the strength of our corporate controls.

Learn more.

Sources:

1. Boston Fed – https://www.bostonfed.org/news-and-events/news/2023/08/check-fraud-rampant-mike-timoney-column-fraud-awareness-key-to-slowing-surge.aspx
2. FinCEN – https://www.fincen.gov/sites/default/files/shared/FinCEN%20Alert%20Mail%20Theft-Related%20Check%20Fraud%20FINAL%20508.pdf
3. USPS – https://about.usps.com/newsroom/national-releases/2023/0512-usps-postal-inspection-service-roll-out-expanded-measures-to-crack-down-on-mail-theft.htm
4. First Coast News – https://www.firstcoastnews.com/article/news/nation-world/usps-touts-crackdown-on-postal-crime-carrier-robberies/507-4da783b4-61c0-453d-95e2-044de461eab6
5. Scripps News – https://www.10news.com/new-bill-in-congress-would-help-protect-us-postal-workers
6. FOX Business – https://www.foxbusiness.com/personal-finance/paper-check-fraud-is-resurging-what-to-know
7. CA DOJ – https://oag.ca.gov/news/press-releases/attorney-general-bonta-announces-56-arrests-5-million-postal-theft-and-fraud
8. USPIS – https://www.uspis.gov/news/scam-article/check-washing
9. FINCEN – https://www.fincen.gov/news/news-releases/fincen-alert-nationwide-surge-mail-theft-related-check-fraud-schemes-targeting
10. SPGlobal – https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/us-banks-increasingly-battle-costly-check-fraud-schemes-79416205