MSNBC's Technology Correspondent Bob Sullivan reports on check fraud perpetrated using demand drafts (often called "remotely created checks") instead of real, personally signed checks.
What's needed to create a demand draft? Simply the account number and bank routing number — information found on every single check. Write a check to your 12-year-old babysitter, and she has all the information she would need to clean out your account.
In early March, the Federal Reserve requested public comment on amending Regulation CC
to set forth rules governing demand drafts that would shift the liability for losses from the paying bank to the depository bank -- effectively shifting the burden of authorization verification to the depository bank.
In order to help reduce the potential for fraud, the proposed amendments to Regulation CC would create transfer and presentment warranties under which the depositary bank would warrant that the remotely created check that it is transferring or presenting to the paying bank is authorized by the person on whose account the check is drawn. The proposed warranties would apply only to banks and would ultimately shift liability for losses attributable to an unauthorized remotely created check from the paying bank to the depositary bank.