Check kiting is a type of check fraud that occurs when someone purposely writes a check for more than they have and deposits it into a different account. Then, they use or earn interest on funds before the check can bounce. This process is illegal and relies on the time it takes for checks to clear (verifying the funds are available), which is usually around 3 days but can be longer for international checks.
Check kiting: definition
Check kiting is the illegal action of writing a check for an amount higher than what you have in your bank account. You rely on the fact that it takes at least a few days for a check to clear, buying you time to come up with the funds or allowing you to earn interest on funds you don’t have. Some fraudsters will continue kiting between several accounts without ever coming up with sufficient funds.
Check kiters usually use multiple checking accounts from different banks. The process can range in how complicated it is, but all instances of check kiting are illegal and should never be used.
Smaller forms of check kiting may go completely unnoticed. Elaborate check kiting schemes may go on until one of the banks involved is alerted or the check kiter stops, and it becomes apparent there are no funds.
How does check kiting work?
Check kiting can take a few different forms and vary in complexity. Some check kiters might use a couple of bank accounts and perform check kiting just when they’re in a financial pinch (still illegal, by the way). Other fraudsters may use several accounts across multiple banks, performing check kiting for as long as they can before getting caught.
The reason check kiting works is because check funds are usually available within a day. You deposit a check on a Monday and have access to the funds on Tuesday. But it takes a few days for a check to completely clear. By playing into the timeframe it takes for checks to clear, fraudsters are able to pass money between accounts without the checks actually bouncing.
Check kiting example #1
- A fraudster needs $500 they don’t have in any of their accounts.
- They write a check from bank account A for $500 on Monday and deposit it into bank account B the same day.
- On Tuesday, they withdraw the full $500 from bank account B and use the funds.
- On Wednesday, the fraudster comes up with extra funds and quickly deposits the $500 bank into bank account A before the check can be returned.
Check kiters might just consider this a temporary loan from the bank. However, it’s unauthorized and fraudulent.
Check kiting example #2
- A fraudster has 3 bank accounts: bank account A, B, and C.
- They write a check for $5,000 from bank account A and deposit it into bank account C.
- They write a check for $5,000 from bank account B and deposit it into bank account C.
- They withdraw $10,000 from bank account C as quickly as possible.
- The checks are returned, and bank account C is now short $10,000.
In this example, the check kiter used the processing times to get access to a large amount of funds they didn’t have. Essentially, they took money from the bank as a form of credit. This use of money was illegal and unauthorized.
Check kiting shell game
Check kiting can also take the form of a “shell game.” In this case, fraudsters move non-existent funds back and forth between accounts over and over again. Through a series of withdrawals and partial deposits, banks collect money from each other without realizing the person doesn’t have the money to begin with.
The amount of funds grows with each transaction, and serious fraudsters might even bring more bank accounts into the mix. In a check kiting shell game, the funds are the “prize,” and the bank accounts are the “shells.” The prize gets passed back and forth between shells and can even grow if they earn interest on the non-existent funds.
How to prevent check kiting
There are efforts you and banks can take to help combat check kiting. It’s a real possibility you could become involved in someone else’s check fraud efforts. By being aware of check kiting, you can help guard against fraud.
What can you do?
To help identify and stop check kiting, you can:
- Only accept checks written out for the exact amount owed to you
- Wait for checks to clear if someone offers you payment and then wants a refund or some money back
- Be wary of “accidental” overpayments during online transactions
- Regularly check your account and look out for checks clearing out of sequence
- Restrict access to checks and keep record of every check used, and void checks that should no longer be in use
What can banks do?
Banks can be vigilant of check kiting by looking out for:
- Frequent balance inquiries
- Several daily deposits
- Deposit amounts almost equal to or equal to debits/withdrawals
- Large amounts deposited and withdrawn by the same person repeatedly
- Frequent ATM use
- Frequent use of multiple accounts at different branches
Banks and other financial institutions should also strive to have security measures in place to identify check fraud. For example, deposit restrictions can help stop check kiting behavior by limiting the number of deposits, placing holds on high-dollar-amount checks, and more.
Check kiting FAQs
If you still have some unanswered check kiting questions, read on to learn more.
Why is check kiting illegal?
Check kiting is essentially taking credit, like a small loan, from a lender without authorization. It’s considered a form of bank fraud and is therefore illegal. Check kiting is very intentional. While someone could bounce a check by mistake, check kiting is done on purpose and occurs repeatedly.
What is the penalty for check kiting?
Check kiting is a serious form of check fraud. Punishment varies based on the severity of the crime. The check kiter could simply lose their account/account benefits, or they could face legal action and even prison.
Why is it called check kiting?
Check kiting gets its name from the idea of floating funds between different accounts without actually having the money. This is similar to a kite, floating back and forth with nothing to support it other than air.
The bottom line
The bottom line is check kiting is a form of check fraud — it’s illegal, and it’s something to be aware of when accepting checks as payment from others. Be conscious of what you have in your account, and only commit to spending what you have. Be wary of others “accidentally” overpaying you or giving you a check and asking for money back. With the right awareness, you can help combat fraud and activity that puts your money at risk.