WASHINGTON, DC, Nov. 22 – Attempted check fraud at the nation's banks rose to $5.5 billion in 2003, according to the latest American Bankers Association Deposit Account Fraud Survey Report.

While attempted check fraud continued to rise, actual dollar losses remained relatively stable at $677 million, down slightly from the $698 million that banks lost in 2001, the last year of ABA's biennial survey. Banks' check fraud prevention systems were credited with keeping actual losses significantly lower than the attempted fraud numbers. Attempted fraud totaled $4.3 billion in 2001.

While dollar losses decreased, the number of check fraud cases increased 3 percent to 616,469 cases in 2003. However, average losses per case went down from $1,163 in 2001 to $1,098 in 2003. Counterfeit checks had the highest median loss per case at $3,059 followed by kiting ($2,566) and alterations ($1,452). All types of fraud combined, the median loss per case varied from $530 for community banks to $1,380 for mid-sized banks, to $2,242 for regional banks, and to $1,821 for the largest institutions.

SOURCES OF CHECK FRAUD

Regardless of bank size, the most common type of check fraud in 2003 was forgery, with about one-third of fraud losses attributed to forged signatures (24 percent) and endorsements (7 percent). Insufficient funds (NSFs), or bounced checks that customers never pay, ranked second (17 percent) and counterfeit checks ranked third (15 percent).

After showing signs of improvement in 2001, new-account fraud reemerged as a serious challenge for banks of all sizes. Compared with the last survey, new account fraud's share of check-related losses rose for community, regional and superregional/money center banks. The increase was moderate at regional banks. However, 44 percent of community banks' losses could be attributed to new account fraud in 2003, a substantial increase from 32 percent in 2001. New account fraud also accounted for a larger share of check fraud cases, regardless of bank size.

FRAUD PREVENTION METHODS

The use of account screening software during account opening ranked as the most effective fraud prevention method by this year's survey participants. The next top vote-getters were use of credit bureau scores at account opening, not cashing checks for non-customers and implementing a centralized fraud management system. The previous survey ranked "positive pay" – a computerized check number matching program between banks and corporate customers – at the top of the list, yet it fell to number five this year.

The most common fraud prevention practices at banks of all sizes were employee training, followed by new account screening software and signature verification for large-dollar items. As could be expected, the larger the bank, the more prevention tools it employed to combat fraud.

CHECK FRAUD OPERATING COSTS

Losses are not the only expense banks incur from check fraud. The amount of resources that banks devoted to check fraud prevention, detection, investigation and prosecution increased with bank size.

One in five money center banks spent more than $20 million each in check fraud-related operating expense (not including actual losses). The median expense per bank ranged from $1 million to $9.9 million for money center banks, $1 million or more for regional banks, $50,000 or more for mid-size banks and less than $5,000 for community banks.

DEBIT CARD FRAUD LOSSES

According to survey results, banks lost a total of $145.3 million in 522,327 cases of debit card fraud with signature-based transactions comprising nearly three-fourths of losses. Signature-based debit card losses totaled $102.2 million in 452,958 cases. Personal Identification Number (PIN) based debit card losses totaled $43.1 million in 69,369 cases. All sizes combined, the median value of losses per fraud case was $294 for signature debit cards and $371 for PIN debit cards.

If compared with the card portfolio size or transaction volume, signature-debit card fraud losses ranged from 48 cents to $1.68 per card annually, or 1 to 2 cents per transaction. These benchmarks generally increased with bank size.

ABOUT THE SURVEY

ABA's biennial Deposit Account Fraud Survey Report was conducted between March and July of 2004. ABA surveyed a national probability sample of 5,081 banks with 417 respondents reflecting appropriate proportions in each size category. The survey used the following categories based on bank assets: community banks, less than $500 million; mid-sized banks, $500 million to $4.9 billion; regional banks, $5 billion to $49.9 billion; and superregional/money center banks, $50 billion and more.

The price of the 120-page report is $150 for ABA members, $450 for non-members. For more information or to order, call ABA at 1-800-BANKERS or visit ABA's Surveys and Statistics page.

FRAUD PROTECTION TIPS FOR CONSUMERS

• Reconcile your statement each month and check for unauthorized transactions.

• Report any suspicious inquiries or unauthorized account transactions to your bank immediately.

• Never give out your checking account number unless it is a call you have initiated.

• Reveal checking account information only to businesses you know to be reputable.

• Shred or tear-up canceled checks and deposit slips before discarding them.

• Notify your bank if you don't receive your checks in a reasonable amount of time.

• Use dark ink, never light colors or pencil than can be easily erased or covered.

• Don't leave blank spaces on the payee or amount lines.

The American Bankers Association brings together all categories of banking institutions to best represent the interests of this rapidly changing industry. Its membership — which includes community, regional and money center banks and holding companies, as well as savings associations, trust companies and savings banks — makes ABA the largest banking trade association in the country.

ABA Media Contact: John Hall
(202) 663-5473
E-mail: jhall@aba.com