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Avoiding Fake Check Scams

Authored By: Iowa Legal Aid LSC Funded

Avoiding Fake Check Scams

Scams involving fake checks are common.  There are also scams involving fake money orders.  We all need to double check the source of unfamiliar checks or money orders before putting them into our personal bank accounts.  Otherwise, we end up paying the bank ourselves. 

Types of Fake Check Scams:

The Secret Shopper 

In this scam, a person gets an offer to be employed as a “secret shopper” to evaluate a money transfer service or various local businesses.  The consumer is sent a check.  The scammer tells the person to deposit the check into his/her bank account and withdraw the amount of the check in cash.  The scammer gives the consumer a deadline to take all or part of the cash to a money transfer service and wire it to an address.  Sometimes the consumer is told to use some amount of the money to make purchases from certain businesses and submit a “secret shopper” report.  In some scams, the consumer is told to keep some of the money as pay for the work performed.  The consumer later discovers that the check or money order is fake and is required to pay back the bank for the full amount of the check.

The Lottery or Sweepstakes Scam

A scammer sends a letter stating that the person has won a foreign lottery or sweepstakes.  The letter includes a check to pay the fees and taxes for the prize.  The scammer tells the person to deposit the check, then wire the money to pay the fees and taxes in order to claim the prize.  The prize never arrives.  The consumer later discovers that the check is fake and he/she owes the bank the amount deposited.  

The Overpayment Scam  

This scam targets a person selling cars or other valuable items through local classified ads, Craigslist ads, or online auction sites.  The scammer replies to the ad or auction posting and offers to pay for the item with a check in an amount larger than the purchase price.  The scammer usually has a story as to why the check is for more than the purchase price.  The seller is asked to wire back the excess money after depositing the check. The seller does this and later is responsible for the full amount of the deposit when the bank discovers the check is fake.

If the Bank Lets Me Withdraw the Money the Check Is Good, Right?  Wrong

The fact the bank allows you to withdraw money doesn’t mean the check is good.  

Under federal law, banks must make funds available to you at certain times:

  • From U.S. Treasury checks, cashier’s check, certified checks and teller’s checks, and checks paid by government agencies, banks must make the money available at the opening of the business day after you deposit the check.  
  • For other checks, banks must make the first $100 available for withdrawal the day after you deposit the check.
  • Any remaining funds must be made available
    • By a local bank on the second day after the deposit,
    • By a distant bank within five days of the deposit.
  • In the name of good customer service, some banks will allow the full amount of a deposited check to be available for withdrawal before it has cleared.

Just because funds from a check you’ve deposited are available for withdrawal doesn’t mean the check has cleared.  It is best not to rely on money from any checks given to you by strangers. The best policy is not to withdraw the money deposited until the bank advises you that the check has cleared.  Fake checks can take weeks to be discovered and untangled.  

You are responsible for any checks you deposit into your bank account.  Until the bank confirms that the check has cleared and the funds have been deposited into your account, you are liable to repay any funds withdrawn against that check. 

Tips for Avoiding Check Scams

  • Ignore and throw away any offers that require you to pay for a prize or a gift.  
  • It’s not free, not a prize and not a gift if you’re required to pay money to get it.
  • Resist the urge to enter foreign lotteries or sweepstakes.  
  • Most foreign lottery solicitations are illegal.  It is illegal to play foreign lotteries through the mail or by telephone.  
  • If a stranger wants to pay you by check, writes it for more than the purchase price and wants you to wire some or all of the money back to them, be careful!  It’s a scam that could cost you money you don’t have.
  • There is no legitimate reason for someone who is paying you money to ask you to wire money back.
  • To learn more, visit www.ftc.gov/opa/2004/12/checkoverpayment.shtm
  • If you’re selling something, you can insist on cash or some alternate way to pay, such as an online payment service or escrow service.
  • Some escrow services charge fees for processing the payment. 
  • If a buyer insists on using a particular online payment or escrow service you have never heard of, check it out. 
  • To learn more about escrow services and online payment systems, visit www.ftc.gov/onlineshopping
  • If you have to take a check, make sure it’s a cashier’s check for the exact amount from a local bank or a bank that has a branch in your area.  
  • You can then check with the bank to make sure both the account and check are valid.  
  • Locate it yourself – don’t trust a stranger’s information.
  • Resist the pressure to take the money out of your account right after depositing the check. 
  • If the person’s offer of money is good now, it will still be good once the check clears.
  • Don’t withdraw any money from a deposited check until the bank verifies that the check is valid and it has cleared.

Reporting Fake Check Scams

  • If you think you’ve been targeted by a fake check or money order scam, report it to the following agencies:
  • The Federal Trade Commission: www.ftc.govor call 877-FTC-HELP
  • The US Postal Inspection Service: www.usps.gov/websites/depart/inspector call the telephone number listed in the Blue Pages of your telephone directory. 1-877-876-2455
  • The Iowa Attorney General’s office: www.state.ia.us/government/ag/index.htmlor call 888-777-4590.

.Reporting Fake Check Scams

If you think you’ve been targeted by a fake check or money order scam, report it to the following agencies:

Iowa Legal Aid provides help to low-income Iowans. 
To apply for help from Iowa Legal Aid:call 800-532-1275. 
Iowans age 60 and over, call 800-992-8161 or 
apply online at iowalegalaid.org
 
If Iowa Legal Aid cannot help, look for an attorney on “Find A Lawyer” on the Iowa State Bar Association website iowabar.org.   A private attorney there can talk with you for a fee of $25 for 30 minutes of legal advice.
*As you read this information, remember this article is not a substitute for legal advice.
Last Review and Update: Sep 10, 2014
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