Only a few decades ago, fooling a bank into cashing a counterfeit check required forgery skills, a nomadic attitude and steady confidence. Modern technology, however, has since lowered the bar. "It's probably about 2,000 times easier today than it was 30 years ago," says Frank Abagnale, a banking industry consultant whose youth as a master check forger in the 1960s was depicted in the 2002 movie, "Catch Me If You Can."
In the past, a criminal needed a warehouse-sized machine to create realistic bank checks. "Today we can sit in a hotel room with a laptop, a scanner and printer," he says. "We can fabricate a check and make it even more beautiful than the bank's." Abagnale travels the country as a consultant for Nashville's Progeny Marketing Innovations, warning banks about the ingenuity and tenacity of fraudsters.
But it's the stories about criminals taking out loans or buying cars in other people's names that evoke the greatest fears among consumers. Victims of identity theft can spend years trying to repair their credit. "Identity theft is a very small portion of the fraud that goes on in the lending area," says TowerGroup senior analyst Christine Pratt, who recently penned a report questioning whether the U.S. Fair Credit Reporting Act focuses too heavily on that issue. "It's a small problem, but it's the one problem that really hits consumers hard." Pratt says banks lose more money on traditional fraud than on new forms of identity theft, although she says it's unclear what the dollar amount is. "I don't think anybody has the numbers on check kiting or any kind of fraud," she says.
That, of course, is part of the problem. The definition of ID theft has become broader in recent years, as the industry and the media have elevated it to crisis status. In fact, much fraud that would have been called "credit card theft" or even "check kiting" a few years ago now often falls under the broad lexicon of ID theft. The result has been much debate over the scope of the problem. A recent report from the Federal Trade Commission says that thieves stole a whopping 9.9 million identities from mid-2002 to mid-2003. But the categories are broad: Of those 9.9 million recent cases, 3.2 million resulted from "new accounts and other frauds" and 6.7 million stemmed from "misuse of existing accounts" for both credit card and non-credit card assets.
When it comes to actual ID cases reported to the FTC, the numbers are much smaller: 214,905 people in 2003, 161,836 in 2002 and 86,212 in 2001. Although many people never report identity-theft to the FTC, Pratt doubts that nearly 10 million people fell victim to it in 2003.
Of course, the FTC's reported identity theft numbers suggest massive growth, with the crime up nearly 30 percent since 2002. The rise of the Internet is one explanation.
In the virtual arms race between banks and criminals, new technologies designed to streamline bank operations can have upsides and downsides in stopping traditional and new forms of bank fraud. For example, new digital imaging technologies encouraged by Check 21 will allow banks to process checks faster and, therefore, detect fraud much sooner. But imaging can also make forgeries harder to detect because banks can no longer examine physical checks for watermarking, bonded paper and other traditional safeguards. "When you remove the original item, the anti-fraud tools...are lost," says Tom Meiman, vp of collection and disbursement at Pittsburgh-based Mellon GCM. "You don't have the physical item to interrogate." Mellon GCM currently uses its own imaging software to detect duplicate checks.
With larger institutions using every weapon at their disposal, some criminals may seek out more vulnerable community banks. "What I'm worried about is that the kiters will move to the smaller banks," says Sydney Smith Hicks, CEO of Addison, TX-based VECTORsgi, a transaction-processing company. "Criminals are looking everywhere-and they do it full time."
Abagnale, who from age 16 to 21 defrauded U.S. and foreign banks of about $2.5 million, says institutions could do a better job of thwarting criminals-even with simple measures like limiting information to bank employees. "How is it possible that a teller has access to my entire customer profile?" he says. And too many banks and retailers view fraud as a cost of doing business rather than aggressively trying to stop it. "If you're not doing anything about crime, you're encouraging crime," he says.
