Defining Bank Fraud
As organizations that take deposits, issue loans and manage investments, trust is very important for banks. Any event or action that weakens a bank's reputation undermines its ability to conduct business. Bank fraud can be defined simply as using fraudulent means to obtain services and money from a bank using misleading documents, lying to bank staff and hacking bank systems. In many cases, bank fraud is a criminal offense that can be punished by large fines or prison sentences. Bank fraud can range from attempting to make false deposits to larger scale events such as obtaining a loan using false documentation. In many cases, bank fraud is committed following identity theft.
Dollars and Sense
There are many different measurements of bank fraud and most amount to rough estimates. Like any crime, frauds are not always reported so law enforcement agencies can only estimate the impact of fraud. US News & World Report estimated that approximately $12 billion is lost by U.S. banks annually due to check fraud; experts consider that figure to be out of date and likely below current losses.
More recently the American Bankers Association has conducted several studies into banking fraud. A 2009 study found that debit card related frauds caused over $700 million dollars in losses; other types of deposit fraud resulted in more than $1 billion in losses. In some instances, bank fraud is part of a larger scheme of financial crimes investigated by the IRS and other organizations including money laundering and financing terrorism. FBI reports on financial crimes have found hundreds of incidents of mortgage fraud across the United States every year; many of these cases involve multi-million dollar losses. In some of the cases, the money obtained through fraud is returned, but this is not always the case.
Banks and banking customers can both take measures to limit fraudulent transactions and the damage they cause. Bank fraud is a consumer issue as well since these events can impact bank's fees, interest rates and customer service. Here are some of the ways that bank fraud is prevented:
- Check Transactions: Several studies of bank fraud have identified check fraud as one of the most important sources of bank fraud. As a result, many banks have invested in check security features. In addition, many banks hold checks for processing – these delays can be used to conduct spot checks and computer based reviews of checks to identify potential frauds.
- Detailed Information on Customers: By properly and thoroughly identifying customers when they attempt to open accounts or perform transactions, bank fraud can be limited.
- Internet Security Measures: Any responsible bank that provides services via the Internet imposes various security measures to make it more difficult for hackers to obtain access to your account. As a customer, you can also take measures to improve your online financial security such as choosing complex passwords and changing your password on a regular basis (e.g. at least once a year).
- Transaction Limits: Many banks impose a limit on the amount of money that can be withdrawn per day; this measure limits the ability of a criminal to fraudulently obtain funds.
2009 Deposit Account Fraud Survey Report, https://www.aba.com/Surveys+and+Statistics/2009_Deposit_Fraud.htm
Financial Crimes Report to the Public 2005, https://www.fbi.gov/stats-services/publications/fcs_report2005
Financial Institute Fraud Statistics, https://www.bankersonline.com/security/gurus_sec090202c.html
$500 Note. By U.S. Bureau of Engraving and Printing. U.S. Bureau of Engraving and Printing/$500 Note (Blue Seal), Public Domain