Bankers losing the war on fraud

Check losses jump 32% from '97 to '99


Banks are still losing ground in their continuing battle against check fraud.

A recent survey by the American Bankers Association showed that check-fraud losses rose to $679 million in 1999, up 32 percent from 1997, the last time the biennial study of nearly 600 banks was done.

Forgery was listed as the most common type of check fraud, followed by bounced checks that customers never cover. Counterfeit checks ranked third. Meanwhile, technology - which often helps banks catch culprits - also makes producing counterfeit checks and signatures easier than ever.

"It's very, very difficult for anybody to distinguish a counterfeit check vs. a real check," said Mike Brittain, a senior vice president in the deposit and access service division at Wachovia Corp.

Still, the survey had an upside: The amount of money that banks could have lost because of check fraud - more than $2.2 billion in 1999 - was far more than the actual losses.

"Banks are doing a much better job at catching check fraud and stopping it from taking place," said John Hall, a spokesman for the bankers association. "But it also means that there are more people out there challenging the integrity of the system."

Hit hardest by check fraud were banks with more than $5 billion in assets.

They accounted for more than 90 percent of total check-fraud losses in 1999.

But the smaller banks within this category - those with assets between $5 billion and $49 billion - are beginning to absorb more of the industry's losses, the survey said.

Regional banks bore a 30 percent share of check-fraud losses in 1999, compared with 25 percent two years earlier. Meanwhile, tiny banks with less than $500 million in assets saw a 35 percent increase in losses, although its share of the total was unchanged from 1997 levels of 6 percent.

"With the banks deploying more tools [to fight check fraud], that makes it that much harder for [organized crime rings] to penetrate the larger banks," said Dick Clausen, a senior vice president in Bank of America's liability risk management division. "Criminals have had to move on to smaller banks."

Bank of America Corp., First Union Corp. and many other banks would not quantify check-fraud losses at their institutions. They also would not talk much about their check-fraud prevention methods, for security reasons.

However, they confirmed that signature verification systems are common, as is training employees to be on the lookout for transactions that are out of character for customers - such as unusually large deposits, Clausen said. Some banks also have computers that monitor account activity.

"Something might be unusual and there's a perfectly logical reason for that," said First Union spokeswoman Karen Kitzmiller. "But we'd rather be safe than sorry."

All the survey's participants rated a system called "positive pay" as one of the most effective fraud prevention methods. Corporate customers provide their bank with a list of people and the number of the company payroll check they have received. That way it's much easier for the bank to know if something is amiss.

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