The Persistent Problem of Check Fraud

Check fraud may be the most stubbornly persistent form of fraud the banking industry faces today, even as consumers increasingly move away from checks in favor of electronic payments. 

Check fraud has exploded in recent years. Between 2021 and 2022, suspicious activity reports filed by depository institutions relating to check fraud more than doubled, totaling over half a million, according to the Financial Crimes Enforcement Network. 

Check fraud filings have maintained roughly that rate in the years since; the agency reported 318,031 filings related to check fraud through August 2025, roughly the same number it posted for that period the prior year. Meanwhile, check usage made up just 3% of consumers’ total share of payments in 2023 and 2024, down from 4% in 2021 and 2022, according to the Federal Reserve’s 2025 Diary of Consumer Payment Choice. 

Check fraud “remains a problem because it’s been established for so long,” says Scott Baranowski, a principal in the advisory group at Wolf & Co. “Everyone understands what the solid lines of demarcation are, and the bad actors are able to exploit those lines.”

Ninety-four percent of bank executives and directors who took part in Bank Director’s 2025 Risk Survey said their bank or its customers had been directly impacted by check fraud over the prior 18 months. That compares with 70% who reported problems with elder financial exploitation and 61% who dealt with digital payments fraud over that same time frame. 

The recent boom in check fraud took root during the Covid-19 pandemic, when criminals started stealing mail in greater numbers in search of government stimulus checks that they could fraudulently cash. It’s also become easier for fraudsters to alter and forge checks, and create counterfeit checks, says Sarah Beth Felix, founder and president of Palmera Consulting. Criminals can readily buy check stock paper, magnetic ink and printers at many office suppliers; they can also buy data corresponding to real checking accounts on the dark web, she adds.  

The issue has even led to some infighting in the industry, pitting small banks against their larger peers. In some cases, fraudsters steal checks drawn on smaller banks, alter or copy them, and deposit those checks to dummy accounts at larger or digital-only banks. By the time the originating bank discovers the fraud, the cash has already been siphoned away from that dummy account. And smaller banks often report difficulty getting reimbursed for their losses by the bank that accepted the phony check. 

Certain technologies can help banks manage and stem check fraud, though they do have their limits. One popular fraud prevention tool is Positive Pay, which matches checks presented for payment with those entered into a client’s check register. Of course, Positive Pay relies upon clients entering and updating that data consistently, and that function has to be properly staffed within the bank.  

“Positive Pay is good, but it’s only as good as the data that they get, and then it’s only as good as the information that we’re checking it against,” says Felix.

Artificial intelligence and machine learning can help detect check fraud, says Andy Lapp, senior director of fraud and managed services at CSI. His firm uses those technologies in its newest check fraud detection tool for commercial clients. The program develops a profile for each client based on the way that business has historically written checks. For instance, a particular client may always spell out the month, rather than numbering it. The goal is to catch fraudulent checks in real time, and Lapp reports early success with around 20 of the company’s bank clients.     

“With AI and machine learning, you can do a lot more. We can shrink the check digitally and count the pixels on the check. Is the logo exactly where it’s supposed to be, or is it just off a little bit? It’s a lot more than just signature comparison these days,” he says. “A lot of these things can be detected digitally that can’t be detected just with eyesight anymore.” 

Before investing in a new technology, however, the board needs to get a handle on exactly what the check fraud problem looks like at their own organization. Dig into details beyond the simple number of suspicious activity reports filed for check fraud, Felix says. For example, what’s the aggregate dollar amount lost to check fraud? How much is the bank able to successfully recover? How much is ultimately charged off as a loss? 

“Revisiting the insurance policy to see what they can actually recoup from their losses would be another measure,” she adds. The insurance policy may cover some types of check fraud but not others, so that’s why it’s important to get a handle on how those losses break down by counterfeit checks versus stolen and altered checks. 

The downside risk of filing claims on the insurance policy is a potential for increased premiums, Baranowski says. At the end of the day, it may be a matter of managing losses. Though checks make up an ever-smaller percentage of payments, eliminating checks altogether is a tough sell and one that could alienate older customers and business clients in particular. 

Community banks “try to be friendly, customer centric, customer focused, but that opens them up to abuses by bad actors who are shopping around checks, trying to send some couriers in to try to cash a check, deposit a check quickly and turn it around, or do a check kiting scheme,” Baranowski says. 

He adds that while most boards generally understand that some losses are the price of doing business, “whether it be debit card scams or check scams, many of them take it personally.”