OCC Warns National Banks on Risks Posed by Scams Involving Fraudulent Bank Cashier's Checks

WASHINGTON – The Office of the Comptroller of the Currency issued guidance today warning of the risks posed by scams involving fraudulent bank cashier's checks and describing steps national banks should take to protect themselves and their customers.

A cashier's check, which is issued by a bank and sold to a consumer or other purchaser, represents a direct obligation of the bank.

The guidance was issued in response to a growing incidence of scams involving cashier's checks. In most of these cases, individuals receive a cashier's check and are asked to deposit the check into their account, wait until funds become available and then wire some part of the funds from their account to a third party, often in a foreign country.

One common scam involves an unexpected windfall. The individual is told he has won a foreign lottery or is the beneficiary of someone's estate, and that the proceeds will be sent to him once the taxes or fees are paid. A cashier's check is provided to cover those charges, and the individual is asked to deposit the check and then wire the taxes once the check clears.

In another scam, an individual sells something on the Internet and receives a cashier's check that is greater than the purchase price. The buyer tells the seller to deposit the check and wire the excess once it clears, keeping some amount to compensate for the time and expense involved.

Although funds represented by the cashier's check may be made available to the customer the next business day, and funds availability may be referred to as a check "clearing," funds availability is not a determination that the check is legitimate. Fraudulent checks are very difficult to detect, and it may take several weeks for a fraudulent check to be returned to the customer's bank. When the check is returned, the bank reverses the deposit and withdraws the funds from the customer's account.

Funds availability is governed by the Expedited Funds Availability Act and the Federal Reserve's Regulation CC, which generally require banks to make funds available the next day in the case of a cashier's check. The Uniform Commercial Code addresses the ability of a bank to charge back checks that are returned to it, including fraudulent checks.

Although the funds represented by the check deposited into a customer's account can be removed from the account if the check is fraudulent, wire transfers from the customer's account are an instantaneous and non-reversible transfer of funds.

The OCC recommended that national banks review their procedures to ensure they have addressed the risks posed by fraudulent cashier's checks, and that they take steps to make sure they accurately explain the status of deposited cashier's checks to customers in order to eliminate any confusion.

"Without such information, customers may conclude that a check has cleared solely because the funds are available in the depositor's account," the guidance states. "Tellers and other relevant personnel should receive appropriate training or other information to accomplish these objectives."

Banks should also consider training to ensure that relevant personnel are aware of the increasing incidence of fraudulent cashier's checks. Tellers could also be trained to examine large dollar checks more closely to identify suspicious cashier's checks, and to ask appropriate questions when customers deposit such items.

OCC BULLETIN 2007-2 Guidance to National Banks Concerning Schemes Involving Fraudulent Cashier's Checks

Related Link

• OCC Bulletin 2007-2: Guidance to National Banks Concerning Schemes Involving Fraudulent Cashier's Checks