DISCLAIMER: This post is not critical of funds availability, nor does it suggest changes to funds availability policies for bank deposits. The focus is specific to how a consumer's misunderstanding of the availability can lead to scam participation and fraud loss. The intention is to highlight how important it is to show consumers how the availability works and to differentiate it from an item clearing.
Scams can take many different forms targeting many different people. Those involved in the scams range from the innocent and desperate to the knowing and greedy. Regardless of where the participants are on the spectrum, the scammer gets what they want; someone to do their dirty work.
That dirty work is getting them money. This is straight forward when it is the victim's legitimate funds. A good story and some payment instructions might be all that is needed. This is a 'Good Funds Scam'. But what happens when the funds run out or the would-be scam participant does not have a lot of money to begin with?
This is where a 'Bad Funds Scam' takes place. Illicit funds can be sent to the participant along with a story and reason to send them elsewhere. In the case of deposit fraud, this typically means a counterfeit check that is given to the one being snookered.
Here is where funds availability comes into play. Banks provide funds to be available on deposits in some cases before the items clear on the other side. This is based on regulations and has a positive impact on a depositor's experience. I sold a car, receiving a check that I deposited into my bank account. I would like those funds sooner than later.
What many consumers don't realize is that availability of funds is not the same as a deposited check clearing. That can take time (usually within a handful of days). The depositor incorrectly assumes they are free and clear on the item.
Apply that logic to a scam involving fraudulent checks. If someone is operating under the inaccurate assumption that funds being available means the check is legitimate and has cleared, it stands to reason that the scheme they are caught up in is on the level. That lack of knowledge can result in them fulfilling the second half of the scam which is to send money out before an item returns. When the item returns, it debits the account, leading to loss.
So, what solutions can address this?
First, general scam awareness needs to flood the culture. People need more education in this space. Any business that has customers leverage their services to transact on the scam should consider an education program (or educational resources) that can be applied to their customer base targeting the most frequent or most devastating schemes.
Second, and specific to the funds availability piece, consumers need clarification on the difference between the availability and the clearing. They need to understand that a check can still return. The information is out there but that doesn't necessarily mean that the awareness is. With things like this you almost need a pop up that shouts the message and requires acknowledgement. It's a long shot, I know, but could be expanded upon if creatively executed (I'll leave it at that for the time being).
Adequately addressing this problem could deflate check fraud, shifting the schemes elsewhere. It would be more difficult for scammers to facilitate the scams on a greater scale using wire, ACH, and other payment methods because they would need to takeover or convince others into the activity.
Think about it like this. You (a fraudster) can create and send counterfeit checks all day (routing number + account number + checks + optional printer). It doesn't really matter if the payer account has funds or blocks. You are hoping that enough of those being scammed are ignorant to the availability versus clearing topic. If you take that away or tip off those people, it means that more are willing to wait a few days without sending the funds. The checks return with no loss, the scam is confirmed, and the scammer must move on to prey on somebody else (assuming the would-be victim has learned the lesson).
I'm interested if others have the same, similar, or different take on this topic. Please let me know and thanks for reading!