Money Order Fraud

What Is Money Order Fraud?

Money order fraud involves forged certified checks and money orders, typically drawn on an overseas bank, which are issued to an unsuspecting person. The person is assured that a money order or certified check is "as good as cash." The victim deposits the check into a bank account, and initially the check clears. The person then withdraws part or all of the funds, and wires them to the person who sent the check. The check is then dishonored as a forgery, and the bank withdraws the money from the victim's account or demands repayment from the victim.
Many people who fall victim to this fraud think that they protecting themselves by checking with the bank to be sure that the check has cleared before they withdraw any money. Unfortunately, this fraud is based upon laws which require banks to make deposits available to their customers within a specified period of time, which is usually significantly shorter than the amount of time it takes for the bank to determine that the check is no good.

Why Aren't Banks Protecting Their Customers?

As was previously mentioned, banks operate under federal regulations which require them to make deposited funds available to a customer within a specific amount of time. If banks do not detect a problem with the check during that time, they will make the funds available to the customer. A bank teller may sincerely believe that as the funds are available in the account, the check was good.
Faced with the prospect of having to explain their violation of federal banking laws, particularly in cases where the checks ultimately are honored, banks have opted to follow the law and put a risk of loss on the person who deposits the check. The banks defend this practice, noting that the person who is in the best position to know if a particular transaction is suspect, or that a particular check may be forged, is the customer.

Posted in: FINANCE AND LAW