Gallet Dreyer & Berkey, LLP | Beware of Counterfeit Check Scams - When Your Bank Lets You Withdraw the Money, It Does Not Mean the Check Is Good
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Beware of Counterfeit Check Scams - When Your Bank Lets You Withdraw the Money, It Does Not Mean the Check Is Good

06/08/2011 | Summer 2011 Newsletter
You deposit a cashier’s check and when the bank tells you the money is available, you wire it to buy non-refundable first class airline tickets to Cancun. Two days later, your bank tells you that the check was counterfeit and you must repay the money immediately. How can that be? The bank said the money was available.

In New York, and most other states, the bank is right and you must give the money back. Even if a bank makes money available to you when you deposit a check, you are still responsible if the check bounces. It does not matter if the check is counterfeit or just bounces because of insufficient funds. If the money is still in your account when the bank finds out that the check is no good, the bank reverses the deposit. For many years, this was a minor annoyance. However, in recent years, counterfeit check scams have been developed to take advantage of the time lag between when a bank makes funds available to its customer and when the bank finds out that a check that the customer deposited has bounced.

In one case, a lawyer represented a man who was supposedly buying real estate. His client told him that his stock broker would send the attorney a $300,000 cashier’s check. The client asked his lawyer to use $200,000 to pay the down payment and wire the rest to the Bank of China branch in Beijing. The lawyer waited to wire the money until his bank told him that the check had cleared, but found out hours later that the check was counterfeit. Because of the time difference between New York and Beijing, we were able to get Bank of China to freeze the money before they opened for business the next morning. The FBI refused to get involved because the amount of the loss was too small, but we eventually convinced the Bank of China to return the money.

In another case, a man was selling his recreational vehicle on eBay for $25,000. A supposed buyer sent the seller a cashier’s check for $32,000. The buyer asked the seller to wire the excess to someone who was supposedly arranging to ship the RV to the buyer. The seller’s credit union had a policy of allowing good customers to withdraw money one day after a check was deposited, so the seller wired the funds right away. Two days later, the counterfeit check bounced. Both the buyer and the shipping company disappeared.

These problems arise because banks must make money available for withdrawal by depositors based upon a schedule established by the Federal Reserve. The schedule is derived from estimates of how long it takes checks to clear, but sometimes the estimates are wrong. In addition, some banks allow good customers to withdraw money faster than the Federal Reserve requires. However, the deposited check still has to go through the check clearing process, make its way from your bank to the bank on which it was written, and then if it bounces, notice must get back to the bank where it was deposited. This may not happen until a few days after your bank lets you withdraw the money.

How do you protect yourself? Do not be in such a hurry to act as a conduit for funds, rushing them out the front door as soon as they come in the back door, especially when you are sending money to someone you do not know or do not owe any money. Very rarely is it a life and death matter that cannot wait two extra days. Always be suspicious when you get more money than you are supposed to get and you are asked to send the extra money to a third party. Because many of these scams target elderly people, you may want to warn any elderly friends or relatives.