Inside this Issue • Check Fraud—A National Epidemic 1 Check Fraud • Identity Theft 2 • Check Fraud Prevention—Best Practices 4 • Check 21 & Check Fraud 6 • A Primer on Laser Printing 7 Identity Theft • Check Security Features 8 • High Security Checks 10 • Check Writing Software / Positive Pay 14 Holder in • NEW! Cyber Crime Protection 15 • NEW! Section for Bankers and Merchants 16 • Holder in Due Course 18 Due Course • Preventing Embezzlement 21 and Cyber Crime Volume 8 FRANKLY SPEAKING . co-pay is paid with a check drawn on your For the identity theft victim, the nightmare bank account. You have just provided enough has just begun. On average, it costs a victim information for someone to become you. $1,173 and 175 man-hours to get their credit Another example. You walk into an report straightened out. Fixing the problem is upscale department store to make a purchase. not as simple as saying “…I did not apply for You take your selection to the cashier and that loan.” You must prove you did not apply write a check. On that check is your name, for that loan. To fix things, you must first address and home phone number, the name of convince the credit card or finance company. your bank and its address, and your bank Then, you must convince all three credit account number. The cashier asks for your bureaus. In most cases, the credit bureaus driver’s license. In nine states, the license refuse to delete the dispute from your credit number is your Social Security number. The files. Instead, they put an asterisk and say, cashier memorizes the birth date on your “Customer disputes this Visa charge, claims license, and then asks for your work phone they were a victim of identity theft.” The result ome of the most serious financial number, which will give them is that anyone accessing your crimes in America are check fraud the name and address of your credit report, whether a potential SS and identity theft. The Nilson Report employer. Once again, a thief employer or a company estimates check fraud losses to be has sufficient information to considering granting you credit, about $20 billion a year. Check fraud is by far apply for credit in your name. may question whether you were the most dominant form of payment fraud and I am 61. As a teenager I really a victim or if you were just produces the greatest losses. Check fraud did things that today, as a ripping somebody off. gangs are hardworking and creative. They husband and father, an I am personally concerned constantly try new techniques to beat the educator and consultant, I am about identity theft. A few years banking system and steal money. Historically, not proud of. But, recounting ago, I subscribed to a service the banks have been liable for these losses. one youthful experience may that notifies me each time my However, changes in the Uniform Commercial be illustrative. credit report is accessed. Code now share the loss with the depositor. In my youth, when I Privacy Guard The Federal Trade Commission reported wanted to establish a new (www.privacyguard.com/frank) that nearly 15 million Americans have been identity (so that I could open provides me with the contact victims of identity theft, costing consumers $5 a bank account and pass bad checks), I would information of any company that obtained my billion and banks and businesses $56 billion go to the Department of Vital Records (in any credit report, as well as the means to correct every year. Because this crime is so simple to city I was in). I would ask to see the death false data. I consider their annual fee money commit, I believe identity theft will become one records for 1948, the year I was born. Every well spent. of the most profitable criminal activities in fifth or sixth entry was an infant who had died This publication was written to help history. at birth. I would write down the death individuals and companies learn how to reduce There are endless opportunities for a information and later apply for a birth their risk of check fraud, identity theft and criminal to obtain the necessary information to certificate in that name. I would fill out a form, embezzlement. I hope you find it useful. commit identity theft. Let me illustrate just pay $10, and obtain a legitimate birth Because there was not space to cover every two, beginning with your visit to a doctor. As a certificate. I would go to the DMV and get a scam, I have included references to various new patient, the receptionist asks you to license with my picture, my description, and agencies and organizations with useful complete a form that asks for your name, somebody else’s name. I had 50 legitimate products or information. I have written three address, phone number, and your employer’s driver’s licenses. books, The Art of the Steal, The Real U Guide name, address and phone, and your health Now, 40 years later, you can buy a CD to Identity Theft and Stealing Your Life that history. They copy your insurance card, which ROM with birth and death records, and can cover numerous scams and solutions in detail. includes your Social Security number. Your apply for a new birth certificate by mail. There For individuals concerned about check fraud, are Web sites that sell Social I designed the Supercheck, a high-security Security numbers for $49.95. personal check with 12 safety features. I also Their advertisements claim that designed the SuperBusinessCheck and they can tell you anything SAFEChecks for companies and organizations about anybody. I researched that want extremely secure checks. these companies—all you See Pages 10 through 13. provide is someone’s name, address and DOB—and they Sincerely, will tell you everything you want to know, including spouse www.supercheck.net and children’s names. CHECK FRAUD AND IDENTITY THEFT, VOLUME 8 GREG LITSTER, EDITOR CHECK FRAUD–A NATIONAL EPIDEMIC ark Twain wrote in 1897, a substantial shared risk from check fraud. holder have failed to exercise ordinary care, a “…the report of my death Executives must answer “How do we assess loss may be allocated based on the extent that MM was an exaggeration.” So, our risk? How much financial exposure are we each party’s failure contributed to the loss. The too, was the predicted willing to assume? What real and hidden costs internal controls used by a company when demise of the paper check in 1973. Now, 35 will we bear if we become victims of check issuing checks will be questioned to determine years later, not only are checks still being fraud? How might our image and reputation be negligence. Since banks are not required to used, they represent the largest category of damaged? How much are we willing to spend physically examine every check, companies non-cash payment instruments. Not to reduce our risk?” may be held liable for all or a substantial surprisingly, check fraud – the paper check’s portion of a loss even if the bank did not evil twin – is the most dominant method of review the signature on the fraudulent check. fraudulent payments, and produces the greatest losses. Check fraud continues to be one of America’s most serious and least STOP PAYMENTS AND HOLDER prosecuted financial crimes, and every IN DUE COURSE checking account holder, company, and Placing a Stop Payment on a check does organization is at risk of becoming a victim. not end your liability to pay the check. Holder In the Payments Fraud and Control in Due Course trumps Stop Payments and Survey released by the Association of Financial Positive Pay exception items. See Page 18, Professionals (AFP) in March 2005, 55% of Robert J. Triffin vs. Cigna Insurance Co. the organizations who responded confirmed Further, a company can be held liable for that they had been a victim of payments fraud. counterfeit items that look virtually identical to The vast majority – 94% – indicated they were its original checks. See Page 18, Robert J. victims of check fraud. This was true whether Triffin vs. Somerset Valley Bank and the organization was large or small. UNIFORM COMMERCIAL CODE Hauser Contracting Co. REVISIONS SHIFT LIABILITY The legal basis for liability in check fraud READ BANK CONTRACTS losses is found in the Uniform Commercial Read your bank contracts to understand Code (UCC), which was revised in 1993. The your liability for fraud losses under the revised UCC now places responsibility for check fraud Uniform Commercial Code. This specifically losses on both the bank and its customers. includes the small print on signature cards and Responsibility for check issuers and paying disclosure statements. It is clear from recent banks falls under the term “ordinary care.” court cases involving fraudulent checks that a Ordinary care requires account holders to bank’s intentions must be stated clearly to follow “reasonable commercial standards” prevail in a check fraud case against a prevailing in their area and for their industry or customer. Accordingly, banks are re-writing business. Under Sections 3-403(a) and 4- their signature card agreements to include 401(a), a bank can charge items against a new provisions and requirements in their customer’s account only if they are “properly disclosure statements. For a summary of the In the AFP survey, only 7% of the payable” and the check is signed with an revised UCC, visit www.FraudTips.net. companies reporting a fraud attempt did not authorized signature. If a signature is forged, lose money.