Bank fraud is a prevalent problem in the financial industry. Despite the increased security measures many banks and financial institutions have taken over the years, scammers still attempt bank fraud on a regular basis. In fact, according to Feedzai’s Quarterly Financial Crime Report, banking fraud attempts soared by 159% from Q4 2020 to Q1 2021, as more and more banking and money scams are taking place online.
To fully understand the risks and take the necessary precautions to protect yourself against bank fraud, you must have a better understanding of what bank fraud is and how it’s committed.
What is bank fraud?
Bank fraud is a broad term for using deliberate deception to steal money or assets from a bank, financial institution, or a bank’s depositors. The term “financial institution” is defined by federal law to include banks and credit unions that are federally insured, such as by the Federal Deposit Insurance Corporation (FDIC).
According to Title 18 of the U.S. Code (18 U.S.C. § 1344), bank fraud involves the use of a “scheme or artifice” to obtain something of value. The person committing the fraud must “knowingly” be involved in order for their actions to legally be considered as bank fraud.
Common types of bank fraud
There are several types of bank fraud that you should be aware of. Here are the most common forms of bank fraud.
One common form of bank fraud is forgery. Forgery occurs when a person presents a check for payment that has been altered or modified. Forging a person’s signature to deposit or cash a check, or changing information on the check — such as adding a zero to the original amount (thus increasing its actual worth) — or changing an account number on a check, are all examples of forgery.
Several banks will credit a check amount before the bank actually has the money from the check writer’s account. The bank gives the person money from the cash available on hand, known as “float.” Check kiting takes advantage of this “float” system used by banks, by using a check with the knowledge that the account does not have sufficient funds to cover the amount owed.
Bank theft may involve stealing checks from mailboxes, mailrooms, or post offices. Perpetrators may then use the information on the checks to commit identity theft by creating checks to draw on the same account or using the information to open new accounts. Bank theft can also consist of stealing credit cards or account data and then using that data to spend someone else’s money.
Fraudulent loans involve using a false identity to obtain a loan, or using false information on a loan application, to hide current financial issues or previous negative financial history. Another type of loan fraud can occur when a person or business takes out a loan from a bank with the intention to file for bankruptcy soon afterward.
Phishing is a form of internet bank fraud in which a scammer uses email, text, phone calls, or other methods to try to obtain a victim’s banking details. Internet bank fraud often involves tricking people into depositing money or submitting a payment to a fake bank.
Tips to prevent bank fraud
Although bank fraud targets banks and financial institutions, you as a consumer can also be a victim if a perpetrator gets access to your financial information. To protect yourself against bank fraud and identity theft, heed the following tips.
Tip #1: Monitor your accounts closely
Always monitor your accounts diligently and review every bank statement carefully. Look out for suspicious activity, such as an unauthorized transaction, unknown loan documents in your name, or being denied credit unexpectedly.
There’s no such thing as being too careful when looking over your transactions. You should regularly check your transaction history and set up account alerts that help you monitor your money and keep your accounts safe.
Tip #2: Never give out your personal information
Watch out for suspicious emails, phone calls, or text messages asking you for your personal information. Always verify that the communication is legitimate by calling your bank or financial institution through an official phone number before providing your account or personal details.
Tip #3: Practice safe online banking
When you bank online, it’s important that you practice safe online banking techniques. Always create the strongest passwords to defend against hackers, and avoid public Wi-Fi when logging into your bank account if possible.
How to report a scam or bank fraud
If you have reason to believe that your bank account or financial information has been compromised in any way, take the following steps.
- Call your bank. Reach out to your bank right away when you suspect fraud. A bank representative will tell you what you need to do and explain the process.
- Inform the major credit bureaus. You should also contact one of the 3 credit reporting companies – Equifax, Experian, or TransUnion – to place a fraud alert on your account.
- Contact the Federal Trade Commission. Call them at 1-877-FTC-HELP, 1-877-ID-THEFT, or reach out to them online at identitytheft.gov, to file an identity theft report and retain it for your records.
What is consumer fraud and how does it differ from bank fraud?
Unlike bank fraud that steals money from a bank or financial institution, consumer fraud targets a consumer. Consumer fraud can involve the use of deceptive, unfair, misleading, or false business practices, to cause a consumer to suffer financial or personal losses.
Credit and debit card fraud, mortgage fraud, and identity theft are some common types of consumer fraud.
How are banks protecting customer data and transactions?
To learn the specific features and procedures in place at a bank or financial institution, you should review their individual safety and security measures on their website. In general, most traditional and online banks have several measures in place to protect their customers.
Banks typically use sophisticated technology and monitoring techniques to secure customer data. Things like multifactor authentication, encryption, AI, and biometrics may all be used to help ensure customer safety.
Are financial fraud and bank fraud the same thing?
Bank fraud falls under the broader category of financial fraud, but not all financial fraud is technically bank fraud. For example, bribery and embezzlement of funds from a company that is not a bank is considered financial fraud, but not always bank fraud.
How do banks investigate fraud?
The fraud investigation process will vary by financial institution, but for the most part if consumers are being targeted, most banks will take the following steps to investigate the fraud.
- Step 1: Look for indicators of fraud
- Step 2: Investigate the case
- Step 3: Notify law enforcement agencies (if warranted)
- Step 4: Reimburse stolen funds (if applicable)
How is bank fraud prosecuted?
Under federal law, anyone found guilty of bank fraud can be fined up to $1,000,000 or imprisoned up to 30 years, or both.
How long does a bank fraud investigation take?
How long a bank fraud investigation will take varies by situation. Investigations could take a few hours to a few months, it all depends on what happened, who was involved, and what resources the bank or financial institution has at their disposal.