Webinar: What's New is Old: Check Fraud & Loan Fraud

Persistent Fraud Resurgence

Check fraud, once viewed as a declining threat in an increasingly digital payments world, has staged a surprising comeback. Mail theft—often from residential boxes or postal facilities—fuels schemes where criminals steal legitimate checks, alter payees or amounts through 'washing' with chemicals, or counterfeit new ones using stolen details. This resurgence ties directly to pandemic-era shifts: stimulus and relief checks sent by mail spiked theft opportunities, and the problem has not abated. Suspicious Activity Reports (SARs) related to check fraud nearly doubled between 2021 and 2023, with hundreds of thousands filed annually since, and institutions reporting check fraud as the most common attack vector in surveys covering 2024 activity.

The real-world costs are stark. Financial institutions absorbed an estimated $1.3 billion in check fraud losses in 2023, while broader payment fraud drains billions more. Consumers and businesses suffer direct hits to accounts, with funds often withdrawn before detection due to Expedited Funds Availability Act requirements mandating quick access. Credit unions and community banks, reliant on paper-based transactions for certain members, face disproportionate exposure compared to larger banks that have accelerated digital migration.

Loan fraud presents a parallel challenge, amplified by digital lending platforms. Fraudsters exploit synthetic identities—fabricated profiles blending real and fake data—to secure loans, often targeting unsecured personal or auto loans. Rising use of AI tools by criminals enables more convincing applications, including forged documents or deepfake verifications in some cases. Lenders face heightened default risks when fraud goes undetected early, leading to charge-offs that erode margins in a competitive lending environment.

Non-obvious tensions emerge in balancing fraud controls against operational realities. Stricter verification slows lending or check processing, frustrating customers who expect near-instant access in an era of real-time payments. Yet lax processes invite greater losses, and regulators increasingly scrutinize institutions' risk management under Bank Secrecy Act obligations. Smaller institutions, like many credit unions, lack the resources of big banks for advanced AI detection, creating uneven vulnerability across the sector.

Broader industry forecasts for 2026 point to continued pressure from these 'old' fraud types amid newer threats like authorized push payments, underscoring that legacy vulnerabilities remain exploitable even as attention shifts to digital innovations.