How Remotely Created Checks Are Used To Commit Fraud

Remotely created checks have become hugely popular what with the convenience they bring with them. They have become useful payment devices for customers and vendors alike, but the downside to a remotely created check is that it is highly vulnerable to fraud.

Before we go into how swindlers manipulate remotely created checks, we’ll briefly explain what a remotely created check is.  A remotely created check is just like any other check. The only difference is that there is no signature of the account holder authorizing the check. In place of the account holder’s signature will be a statement that says the customer has authorized the check or bears the customer’s name in print.

You may have already noticed why remotely created checks are prone to manipulation. Since they require mere statements and printed names to confirm authenticity, and not the more reliable and more difficult to fake signatures they can be easily be used to perform transactions.

And what is even more frightening is that almost anyone can create an unauthorized remotely created check. All that is required is the bank’s routing number, the individual or company’s account number to be debited and a statement. Amassing money for fraud through remotely created checks is a piece of cake as it does not require the account holder’s signature.

One particularly egregious example of using remotely created checks to create fraud is outlined in the FTC’s news release of a 10 million dollar remotely created check scam which worked as follows:

In papers filed with the court, the FTC charged that since January 2004, defendants using the name “Pharmacycards.com” electronically debited thousands of consumers’ accounts for $139, without consumers’ knowledge or consent. Prior to the unauthorized debiting of their checking accounts, consumers had no contact with the defendants. According to the FTC, the defendants attempted to debit more than $10 million from consumers’ checking accounts in less than three months. The FTC alleges that the defendants gained access to the banking system via third-party payment processors by claiming that they were engaged in a legitimate business – selling pharmacy discount cards. Their Web site touted the benefits of their cards and advertised retailers such as Target and Wal-Mart that participated in the discount program. The Web site also listed a toll-free customer service number and a mailing address in Canada. According to the FTC, the major retailers’ logos were hijacked – they didn’t participate in the program. The mailing address was false and mail sent to the address was returned.

Some consumers received letters after money had been withdrawn from their account explaining the program and saying that because the consumer had previously purchased a product from one of the defendants’ “marketing partners” using their checking account, the consumer did not need to provide the account number again. The letter said that consumers who were not interested could call the toll-free customer service number to cancel within five days of receiving the letter. By this time, the money already had been debited from their accounts.

According to the complaint, the defendants provided consumers’ checking account numbers to the third-party payment processors with whom they had contracts. One processor alone debited more than 72,000 checking accounts for the defendants, generating more than $10 million in attempted debits. While more than 50,000 of those transactions were cancelled or returned, many other consumers were unaware of the transaction or unable to have it reversed, and $139 was removed from their accounts without their authorization.

You can read the news release FTC Halts Unauthorized Bank Charges In Bogus Pharmacy Card Scam here.

What makes remotely created checks even more dangerous financially is that remotely created checks are paper checks that are extremely hard to monitor. It is easy for a few remotely created checks to be masked by thousands of checks with signatures thus making it impossible to detect a remotely created check used to commit fraud. On top of that, remotely created checks cannot even be identified in the first place.

So while the use of remotely created checks might have made payment of bills much more convenient but the disadvantages of remotely created checks outweigh its advantages. Thus it would be much wiser of you to resort to other, more advanced and safe options.