I. INTRODUCTION
There are differences between a certified check, a cashier’s check, and a teller’s check. Each of the three different types of checks are described below.
II. DESCRIPTION OF CHECKS
The three different checks are:
A. Certified Check
Revised U.C.C. 3-409(d), defines certified check to mean a “check accepted by the bank on which it is drawn. . . . The drawee of a check has no obligation to certify the check, and refusal to certify is not dishonor of the check.”
Any routine check can become “certified” if taken to the bank upon which it is drawn and then signed by that bank. The drawee bank’s signing of a routine check constitutes an acceptance, and the bank, as acceptor, becomes “obligated to pay the draft…according to its terms at the time it was accepted.” Revised U.C.C. 3-413. Regulation CC (12 C.F.R. 229.2(j)), which gives certified checks mandatory next-day availability just like cashier’s checks, defines them as checks for which a bank certifies the genuineness of the drawer’s signature, has normally set aside funds to cover the check, and is directly liable.
B. Cashier’s Check
A cashier’s check is simpler. The cashier’s check states that (a) the party drawing the check is not an individual or company, but a bank, and; (b) the bank being ordered to make payment is that bank itself. As stated in Revised U.C.C. 3-104(g), a cashier’s check is simply a check “with respect to which the drawer and drawee are the same bank or branches of the same bank.”
The cashier’s check is vastly different from a routine, garden-variety check because, unlike the routine check, the cashier’s check obligates the bank to make payment. It is a full-blown bank obligation. The cashier’s check, in consequence, although superficially quite different from a certified check, is similar in that both obligate a bank to make payment.
C. Teller’s Check
Revised U.C.C. 3-104(h) defines “teller’s check” as “a draft drawn by a bank (i) on another bank, or (ii) payable at or through a bank.” This is consistent with Regulation CC (12 C.F.R. 229.2(gg)), which defines “teller’s check” as: “[A] check provided to a customer of a bank or acquired from a bank for remittance purposes, that is drawn by the bank, and drawn on another bank or payable through or at a bank.”
A teller’s check is sometimes called a bank draft. It is used as a remittance instrument because, like a cashier’s check, it is the obligation of the bank and gets next-day availability under Regulation CC.
III. FRAUDULENT CASHIER’S CHECKS
A growing problem for consumers in depository institutions is the use of fraudulent cashier’s checks. Sophisticated copying and printing technologies have enabled thieves to produce counterfeit documents that look authentic. The Office of the Comptroller of the Currency (OCC) has issued guidance warning of the risks posed by scams involving fraudulent bank cashier’s checks and describing steps national banks should take to protect themselves and their customers. While the OCC guidance applies specifically to national banks, state banks may want to consider following the recommended steps, as well. The guidance was issued in response to a growing incidence of scams involving cashier’s checks. In most of these cases, individuals receive a cashier’s check and are asked to deposit the check into their account, wait until funds become available and then wire some part of the funds from their account to a third party, often in a foreign country.
A. Typical Cashier's Check Scams
1. Unexpected Windfall
One common scam involves an unexpected windfall. The individual is told he has won a foreign lottery or is the beneficiary of someone’s estate, and that the proceeds will be sent to him once the taxes or fees are paid. A cashier’s check is provided to cover those charges, and the individual is asked to deposit the check and then wire the taxes once the check clears.
2. Excess of Purchase Price
In another scam, an individual sells something on the Internet and receives a cashier’s check that is greater than the purchase price. The buyer tells the seller to deposit the check and wire the excess once it clears, keeping some amount to compensate for the time and expense involved.
3. Mystery Shopping
The consumer receives a letter stating that he or she has been chosen to act as a mystery shopper. The letter includes a cashier’s check, and the consumer is told to deposit the check into his or her account. The consumer is told to use a portion of these funds to purchase merchandise at designated merchants and to transfer the remainder of the funds to a third party using a designated wire service company.
4. Money Transfer Agent
The consumer is solicited to act as a money transfer agent. The consumer is told that he or she will receive cashier’s checks to deposit into his or her bank account. The consumer is then told to wire specific sums to various persons or accounts in other countries.
In each of the scenarios, the consumer believes that the cashier’s check is valid and deposits the check into a deposit account. After the depositary bank makes the funds available to the consumer, the consumer sends goods or, where requested, funds to the third party. Sometime later, the check is returned unpaid by the paying bank because the check is discovered to be fraudulent. The depositary bank then reverses the credit to the consumer's account. As a result of this check fraud, the consumer suffers a loss of the goods sold, the funds wired, or both. It can be very difficult to detect fraudulent cashier’s checks in these scenarios. Fraud perpetrators may employ various devices to delay or make more difficult the detection of the fraud. For example, the check may be drawn on a bank located in a different check processing region than the region in which the depositor is located. Fraud perpetrators also may take actions to make the transaction look as genuine as possible, such as using - and altering - a genuine check. Checks may also list the name of one bank, but contain the routing number for another bank. Similarly, the perpetrator may deliberately make part of the check illegible in order to ensure that the check must be handled manually, slowing its processing time.
While counterfeit cashier’s checks are an increasing problem for large and small banks, institutions can take a number of preventative measures to protect themselves and their customers.
B. Preventative Measures
1. Verify the Telephone Number of the Issuing Bank
Many institutions that receive a cashier’s check over the teller line make a practice of calling the issuing bank to verify the legitimacy of a cashier’s check. This is a reasonable and prudent way to minimize the risk of fraud. However, bank personnel should independently verify the telephone number that is printed on the face of the check. While this may take extra time, it would prevent the institution from processing a fraudulent item. Sophisticated crooks have been known to establish telephone lines and impersonate bank personnel to derail attempts by banks to identify fraudulent cashier’s checks.
2. Ask Questions
Frontline staff should be encouraged to engage customers in conversations about transactions involving cashier’s checks. Staff may want to inquire as to the following:
3. Use FDICconnect
Community banks can use FDICconnect to view information about fraudulent cashier’s checks. This secure website includes information about counterfeit cashier’s checks, provides copies of fraudulent checks and includes a search function enabling an institution to look for counterfeit checks by city, state and bank name. Each institution must register to access FDICconnect at https://www.fdicconnect.gov/index.asp.
4. Educate Your Customers
Community banks should work to debunk common myths about cashier’s checks and inform customers about common fraud schemes. Many customers mistakenly believe that a cashier’s check is equivalent to cash. Others understand that a hold may be placed on a cashier's check, but incorrectly believe that the check has cleared when the hold expires.
5. Display FBI Poster
A fraud alert poster is available from the FBI with a series of questions that tellers and other customer service personnel should ask when a customer presents a cashier’s check for deposit. Tellers should be encouraged to contact bank management if a customer answers affirmatively to any questions on the poster.
For example, the FBI suggests questions such as “is the check from an item you sold on the Internet, such as a vehicle, musical instrument or jewelry?” Or, “have you been asked to pay money to receive a deposit from another country such as Canada, England or Nigeria?” The poster is available at https://www.fbi.gov/file-repository/fraud_alert-2.pdf/view and may be reprinted and distributed.
6. Funds Availability
Tellers and other customer service personnel should be especially careful when answering a customer’s inquiry about whether a cashier’s check has cleared. Due to Regulation CC funds availability requirements, most consumers do not understand that funds underlying a cashier’s check may be available for withdrawal before a cashier’s check is returned as fraudulent. Many consumers do not know that they may be held responsible for the entire amount of the counterfeit check under state law.
C. Legal Issues
1. Funds Availability
Generally, a bank must make funds deposited by government and cashier’s checks available within one business day after deposit, if certain requirements are met. Otherwise, the bank must make local cashier’s checks (defined as checks payable by, at, or through a bank located in the same check-processing region as the location where the check was deposited) available within two business days after deposit. The bank must make non-local cashier’s checks available within five business days.
Regulation CC contains several exceptions that allow banks to delay making funds available. If a customer deposits more than $5,000 in any one day, for example, the bank may place a hold on the amount over $5,000. For purposes of this exception, the bank may aggregate all checks deposited into all accounts held in the customer’s name, either as sole or joint holder.
The bank also may delay making the funds available if it has reasonable cause to believe that the check is uncollectible from the paying bank. For purposes of Regulation CC, there is reasonable cause if facts exist that would cause a reasonable person to have a well-grounded belief that the check is uncollectible. However, the bank may not base its reasonable cause determination on the fact that a check is of a particular class or has been deposited by a particular class of persons. Therefore, a bank may not, for example, place a hold on all cashier's checks.
If the facts support imposing such a delay, the bank may delay availability only for a reasonable period of time. Regulation CC also provides a safe harbor for determining a reasonable period of time for this purpose: the bank generally may withhold funds for a total of seven business days for local cashier’s checks, and for a total of 11 business days for non-local cashier’s checks. If the bank holds a check for longer than the applicable safe harbor, the bank must establish that the longer period is reasonable.
2. Reversing the Deposit Credit
The Uniform Commercial Code (UCC) addresses the ability of a bank to charge back items returned to it, including fraudulent cashier’s checks. Depositary banks generally may charge back to their customers the amount of checks that are later returned by the paying bank. In addition, a bank may provide in its deposit agreement for the right to charge back any item regardless of when the item is returned to it. The fact that a depositary bank has made funds represented by the returned item available to the depositor - even if the depositor has made use of such funds - does not affect the bank’s right under the UCC or its deposit agreement to charge back the item or otherwise obtain a refund from its customer. Similarly, if a paying bank mistakenly pays a fraudulent cashier’s check, the UCC generally allows the bank to recover the amount paid.
D. Risks For Depositary Banks
Customer deposits of fraudulent cashier’s checks create a number of risks for depositary banks. For a variety of reasons, the customer may believe that the depositary bank bears some responsibility for his or her loss. For example, the customer may argue that the bank should not have credited the account before the check cleared, or should have followed different procedures in order to detect the fraud.
This customer dissatisfaction would raise reputation concerns for the bank. In addition to the immediate customer relations impact, a bank could face broader reputational risk, including from possible litigation by the customer.
Depositary banks also may face credit risks in these situations. Reversing the deposit may cause the depositor’s account to become overdrawn, and thereby create what is, in effect, a loan to the depositor. In that event, the customer may be unable - or unwilling - to repay the overdraft.
Paying banks also experience risks related to fraudulent cashier’s checks. Paying banks that fail to identify fraudulent cashier’s checks may pay the checks erroneously. Even if they identify the checks as fraudulent, they may find themselves liable for the amount of those checks if they do not return the checks in a timely manner.
E. Recommended Actions
A bank should take actions to address the risks to the bank and its customers posed by fraudulent cashier’s check schemes;
National banks that become aware of counterfeit or stolen financial instruments are required to notify law enforcement of certain suspected violations of law and suspicious transactions by filing a suspicious activity report.
F. Conclusion
Due to the increasing availability of sophisticated electronic equipment and the transient nature of our society, community banks cannot completely insulate themselves from fraudulent cashier’s checks. However, institutions can reduce the risk of fraud by becoming more aware of common scams and training tellers and other front line personnel to identify transactions commonly associated with fraud.