Check Fraud and Your Potential Losses

By Angie Smith, AAP, NCP, Wespay Executive Vice President of Education and Events

It’s no secret. The number of checks written by consumers has steadily declined over the last two decades. In contrast, check fraud has sharply risen. And there is no sign of it slowing down anytime soon. The problem is your financial institution could be on the line.

Forgery, altered checks, stolen checks, check washing, and check cooking are a headache and a potential financial loss when those checks are cashed, deposited, or both. Technology, training, and internal checks and balances can help mitigate those losses. The goal is to stop the fraud before it costs you money.

When are you liable? If you’re the depository institution, you’re on the hook if you don’t stop a check that has been altered. You’re also responsible for forged endorsements. As the paying bank, you must catch counterfeit checks and ensure the drawer signature is legitimate.

“If a check is altered, it’s the responsibility of the depository institution,” states Thomas Lu, Wespay AVP, Risk and Regulatory Compliance Payment. “If it’s counterfeit, then it’s the paying institution’s liability.”

It all comes down to your institution’s risk appetite. What is your financial institution willing to eat if something gets missed?

Yes, you can hold checks to give yourself a bit more time to spot issues. But those amounts and rules in Reg CC Expedited Funds Availability ACT (EFA Act) are seeing significant changes on July 1, 2025. Are you ready?

Knowing the rules and your liability can help mitigate your risk. Wespay’s Check Fraud Prevention Webcast is designed to showcase prevention and detection methods and how to implement sound operational processes throughout your organization. Learn more and sign up for this webcast on our website.