Fraud Articles:  You'll be liable if your bank accepts a bogus check, even if it 'clears'

Link: http://www.buffalonews.com/editorial/20060611/1058672.asp
Source Name: Buffalo News

L.A. Times/Washington Post

John Schaefer lost $5,000 in a check scam, even though his bank twice told him the overseas check he had deposited was good.

Trying to sell his 1968 Mustang online, John Schaefer received what appeared to be a firm offer from an overseas classic-car dealer. The buyer sent Schaefer a check for $14,000 even though Schaefer was asking only $8,000. The buyer said the extra money was to cover shipping and directed Schaefer to wire him the difference.

"It seemed kind of funny, and I had some hesitation," said Schaefer, who deposited the check in his bank's ATM over the weekend. On Monday, he asked a teller to see if the check was good. She went to the backroom and returned assuring him "there was no problem," Schaefer recalled.

On Wednesday, "still not feeling quite right," Schaefer asked the same teller to make sure the check was good. That time, the teller told him the check had been cleared and he was "all set." Schaefer withdrew $5,000 and wired the money to the buyer.

Four days later, as he reviewed his account online, he discovered the check was not good. Even worse, the bank was demanding that he repay the $5,000.

"Had I made the deposit and not tried to make sure it was legitimate, I should have full obligation to make good on it," said Schaefer, 34, of Brattleboro, Vt. "But I checked with the bank twice, and now I find out they have no accountability."

Schaefer is one of thousands of consumers who have been victimized by an increasingly common check scam that relies on the vagaries of the banking system to succeed.

Federal rules require banks to release funds from a consumer's deposit quickly, usually within one to five business days, depending on the kind of check. However, it can take weeks before a bank discovers a check is fraudulent.

So when a teller says "the check has cleared," the teller is "usually thinking in terms of bank rules, that the hold time is over, and the consumer now has access to the funds," said Susan Grant, director of the National Fraud Information Center.

But the average consumer thinks that phrase means "the check is not fraudulent."

When that happens, it is depositors who are responsible for the money, she said. As the American Bankers Association explains in a "Fraud Alert!" statement insert it distributes to banks to send to customers: The consumer is the one dealing directly with the person who sent the money and therefore is "in the best position to determine how risky the transaction is."

To facilitate the flow of funds behind the 40 billion checks processed each year, banks are required to release funds within a few days, said Nessa Feddis, senior federal counsel for American Bankers Association.

If tellers start asking a lot of questions or start holding checks until they are determined to be good, banks "might be perceived as trying to circumvent the rules entitling people to withdraw funds," Feddis added. It would only be a matter of time before they were hauled before Congress and "accused of trying to hold on to people's funds," she said.

That provides no comfort to those who have gotten caught in scams. "I want security more than fast check-cashing and money flying all over the place," said Toni Gaston of New Jersey, who was the victim of an Internet work-at-home scam earlier this year.

She accepted a "job" with an international charity based in Ukraine that builds homes for people in disaster areas. Her assignment was to deposit local donations into her own bank account, wait for the checks to clear and then wire the money to the charity, less her commission.

Gaston received a $4,500 cashier's check and immediately deposited it. The teller told her it would take three days to clear. A few days later, Gaston reviewed her account online and saw the funds were in her account.

She wired $3,900 to the "charity," supposedly keeping the rest as her commission.

Days later she found out the cashiers check was fake and she owed her bank $3,900.

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