A colleague recently wrote me: “I spent most of last Thursday helping an elderly client who was scammed. Fortunately, ‘Doris’ discovered the scam and we were able to avert disaster.”
Doris, a widow, was living independently, buying her expenses and writing her own checks. She also balanced her checkbook as soon as she received a statement from the bank. She only wrote eight to 10 checks a month to her church, the utility company, her rent and a few nearby stores. She and her husband had planned well, and she was comfortable knowing that although she wasn’t wealthy, she probably had enough to live out her life in dignity and with comfort.
Last month, when she received her bank statement, Doris found out just how vulnerable technology made her. Her statement showed 13 canceled checks, more than she usually wrote. Looking closer, Doris saw a new name, “Josiah Slinger,” that was signed on three of her checks. She thought the bank must have made a mistake and applied his checks to her account. Then she looked closer and saw that Slinger’s name was printed on her checks with her bank number, debiting her funds. Even though these three checks were for small amounts, she had not authorized any of them.
Modern technology makes it easy for thieves to gain access to bank accounts. Many banks employ automated check-processing techniques that do not verify the signature on each check to the signature on the deposit account, so checks that appear to be proper may be processed and funds paid out of your account. With software programs, laser printers and electronic document processing, police investigators explained to Doris that thieves can easily gain access to her bank accounts.
So the next time you write a check and hand it over to a stranger, is your account safe? Do you balance your checkbook the same day you get your bank statement in the mail, like Doris? Do you get photocopies of your checks with your bank statement? You may have just 30 days from the date of the bank statement to report theft in order possibly to recoup the funds.
Ultimately, a party forging checks is responsible for the losses they cause, if they can be found. However, usually the forger is long gone or does not have the money to pay for the damage, which is why the forger took money in the first place.
A bank has a responsibility under Pennsylvania’s Uniform Commercial Code to withdraw only authorized funds and a false check is not authorized, so the bank may be liable to return improper withdrawals. However, this only applies if banks are promptly notified. Under the law, the customer has a duty to discover and report unauthorized signatures or alterations with reasonable promptness. Typically, the depository contract will limit the discovery period to 30 days. Once reported, the bank generally must credit the item back to the account unless it can prove that the customer failed to comply with his or her discovery and reporting duties as imposed by the law. However, once a customer has notified a bank of a forgery incident, and has had at least 30 days to examine previous statements, he or she may not recover a loss on items previously forged by the same party and paid by the bank before it was notified. A customer can also be precluded from asserting against the bank if the customer was negligent in protecting his or her checks.
This could have been disastrous for Doris. Although only three checks showed up on her bank statement, the check numbers that showed up on her statement indicated that at least 23 checks had been written, but only three had cleared when the bank statement was issued and she caught the fraud.
The ending to this story is that because she promptly notified the bank, her funds were restored to her account. If she had not acted quickly, she might have seen her savings depleted by this unknown thief with no practical means of redress.
Debit cards carry fewer protections and can cause more problems. If you have lost your card and reported it within two days, your liability is generally limited to $50. If you take more than two days to report it, you can be liable for up to $500. If you see unauthorized charges on your statement, but your card isn’t missing, you must report the fraud within 60 days of receiving that statement. If you fail to do so, payback of losses could be unlimited.