A dealer has informed us of a recent scam attempt where a customer presented what appeared to be a valid check for a used car.  The customer wanted to refund money to his “shipper”. The customer appeared genuine in their communications, stating after depositing the check and it clears to forward the money onto their shipping agent.

Regardless of what appeared on all fronts to be a legitimate purchase, the dealership wisely did not deviate from its check refund policy and held the check until it officially cleared.   The check came back as counterfeit.

FADA alerted our members back in January as there has been an increase of counterfeit checks used to purchase cars.  These checks are drawn on valid client accounts but are altered/counterfeited to appear as though they are bank issued checks.

Recommendations:

  • Dealerships should establish and enforce a waiting period for refunds. Make sure your customer’s check clears before refunding the money.
  • Verify the checks with the drawee bank before accepting them.
  • Pay special attention to checks that contain misspellings and missing drawee bank information.
  • Banks issue Official Checks and Cashier’s Checks, but not Official Cashier’s Checks.

Reminders on acceptance of checks (courtesy of a 2006 Memo from Marc Brandes, Esq.):

  • Never accept payroll checks.
  • Look for alterations or changes in the check (e.g., water spots, color or background picture).
  • Always ask to see the customer’s identification card or driver’s license. Compare the signature and the address on the card with the information on the check. A photo ID is recommended.
  • Ask the customer to sign the check in your presence and compare it with the signature on the identification.
  • Watch for checks with low numbers. Most bad checks bear numbers from 101 to 499, which usually indicates a new account.
  • Never accept a double-endorsed check, which is a check made out to someone else, who then supposedly signs it over to the person who submits it as his or her payment for a purchase.
  • The last three or four digits of the Federal Reserve number in the right-hand corner of the check should match with the first three or four digits of the routing and transit numbers on the bottom left of the check.
  • Try not to accept pre-dated or post-dated checks. The funds may not be available in the account when you try to deposit it.
  • The dealership should establish a waiting period for refunds. Make sure your customer’s check clears before refunding the money
  • Accepting check cards, such as MasterCard’s Master Money Card and the Visa Check Card, may actually be safer than taking paper checks. A check card is an immediate debit from the customer’s bank account, while paper checks can take up to 14 days to clear.
  • A WORD ON CORPORATE CHECKS Try to avoid accepting checks drawn on a corporate account. If the customer insists on the use of a corporate check, ask the customer to have the corporate check made payable directly to the customer, then as the customer to remit a personal check to the dealership. If the customer does not wish to do this, make certain that: (a) the corporation is in good standing (if a Florida corporation, look at www.sunbiz.org to check the corporation’s standing, the officers, how long they have been in existence—or if it even exists!); (b) the corporation presents to the dealership a signed corporate resolution that the corporation acknowledges the distribution of the check and that the person presenting the check to the dealer is authorized to do so; and (c) if at all possible, ask the customer to personally guaranty the check. Obviously, each transaction is different. Take into account the dealer’s possible exposure versus the sale itself. Remember, collecting a worthless check is difficult – collecting a worthless corporate check is usually much more problematic.