Easy check fraud technique draws scrutiny

"One of the weaknesses in U.S. payment systems is how easy it is to create bogus checks and deposit them at a bank," said Michael Herd, a spokesman for NACHA/The Electronics Payments Association, which sets rules for electronic bank transfers. 

Last year, MSNBC.com exposed a Web site named PharmacyCards.com that was creating demand draft checks and withdrawing $139 from checking accounts all over the United States. The Federal Trade Commission later sued the site and alleged it had attempted to steal $10 million with bogus demand drafts. Herd said that incident is part of the reason demand drafts are now under increased scrutiny by the Fed.

Victim blames Web site
McNamara of Urban Age said the Web site that printed and mailed the checks on behalf of the con artists should be held responsible for its role in enabling the fraud.

“[Qchex] does not verify that the person writing the checks is the actual account holder.  Security is astonishingly loose,” she said. “This is awful.”

In fact, the site urges consumers to register their checking account numbers before they are claimed by a criminal.

“Registering your bank accounts with Qchex ensures no one else can setup or access your account numbers on the Qchex system,” the site advises in its instructions.

There are dozens of fraud complaints against Qchex on various consumer-oriented Internet sites; the Better Business Bureau in San Diego maintains an unsatisfactory rating for the firm owing to complaints. Qchex COO Danforth said he believed most of those complaints had been resolved and insisted "we don't like bad guys using the system."

Danforth said that while criminals have occasionally used Qchex to commit fraud, similar frauds can just as easily be committed with a home computer and a printer.

"Anybody could take any check in America and commit fraud," Danforth said. "A check is a very simple document to reproduce."  Danforth said Qchex receives 10 to 15 complaints each week, but said that was only about one-quarter of 1 percent of all transactions.  He said the site is adding anti-fraud measures in response to complaints, but so far, none of those measures included identity verification.

Danforth said banks should bear the blame for any fraud committed using Qchex systems.

"I would ask, 'Why the heck would the bank clear [the] checks?" he said.  "What do they do to validate the checks?"

Burnett of Bankersonline.com said he had heard complaints from banks about Qchex, but would not speculate on the Web site's motives. He was critical, however, of its verification procedures.

"Clearly their unwillingness to take even the most rudimentary steps to identify who they are dealing with seems to be facilitating fraud," he said.

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