Legislators Question Regulators About Remotely Created Checks

This practice is enabling the perpetration of schemes that are draining millions of dollars from the bank accounts of vulnerable Americans, including the elderly and individuals with chronic, debilitating diseases, as highlighted by the New York Times last month (“Bilking the Elderly, with a Corporate Assist”, May 20, 2007, A1).

The letters were spurred by a New York Times report on Sunday, May 20th that financial institutions like Wachovia Bank regularly process and accept unsigned checks that have been created by criminals. These checks then are presented to banks in the name of victims who did not authorize payment and are unaware of the withdrawal until they receive their bank statement. In 2005 the Attorneys General of 35 states urged the Federal Reserve to prohibit financial institutions from accepting remotely created checks as a form of payment, noting their widespread use by fraudsters.

In order to shed light on this practice, Reps. Markey and Frank requested detailed answers to several questions, including:

• Does your agency consider the acceptance of remotely created checks a safe and sound banking practice? On what basis does your agency make this determination?
• How does the amount of fraud associated with this activity compare with amount of fraud associated with other products?
• Who bears the risk of loss in instances of fraud related to remotely created checks (i.e, are there limits on a consumer’s exposure as there are in credit card transactions?)
• Some countries such as Canada have banned the use of remotely created checks because they are readily available tools for fraudsters. Are there unique needs of our national economy that necessitate the use of remotely created checks despite the fraud risks?
• We have been informed by the Federal Trade Commission (FTC) that FTC staff has contacted the appropriate federal banking regulators to discuss the activities described in the New York Times article cited above. Is your agency currently investigating these activities?

Letters were sent to the heads of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision, National Credit Union Administration and Office of the Comptroller of the Currency.