The Federal Reserve's proposed check fraud survey is likely to show that the crime is on the rise, an industry expert said.
"I'll be surprised if they don't find that the problem is worse," said Bruce Brett, senior vice president at Signet Bank in Richmond, Va., and former chairman of the American Bankers Association's check fraud task force. "There are two reasons. For one, it probably is worse. And two, the banks are more attuned to the problem now."
The Fed plans to use the survey to determine the effectiveness of Regulation CC, the rules implementing the Expedited Funds Availability Act of 1987. The survey was mandated by the 1994 Community Development Banking Act, and the results must be submitted to Congress by next September.
The regulation states, among other things, that banks must clear local checks in one day.
The study's main focus, according to Michelle Braun, senior financial services analyst in the Fed's check payments division, is to determine whether delaying the availability of local check funds an extra day would help deter fraud.
"Alongside the other things, Congress is specifically interested in availability timing," she said. "They want to see if they could make a difference by changing things some."
A draft copy of the survey was released last month and is out for comment through Feb. 20. Minor changes may be made before it is released in late March, but the six-page questionnaire is expected to probe bankers on a variety of issues, such as: how many instances of check fraud they dealt with in 1995, what sorts of checks most commonly were involved, how much money was lost, and how much the bank spent fighting check fraud.
Mr. Brett said that even if the availability delay were extended, its effect would be limited. Competitive pressure would prevent many banks from extending holds on customers' money, he said.
Competition was cited in a 1994 ABA survey as a major contributing factor in the growth of check fraud, along with the availability of more sophisticated laser publishing and reproduction products.
One way of combating the problem, Mr. Brett said, is with software designed to record and track all checks by number and dollar amount. But, he added, even with new fraud-fighting techniques, the problem is getting worse.
Ms. Braun wouldn't speculate on what the study might find, but she did say it is needed, because no one knows how the availability act rules are working.
The ABA conducted check fraud surveys in 1992 and 1994, the only studies available on the topic. The second study revealed 1.3 million cases of check fraud - a 136% jump from 1992 - and estimated bank losses of $815 million.
Northeastern and western states were the hardest hit, according to the survey. Also, retail accounts received more fraudulent checks than corporate accounts.
But it's hard to tell whether the increase is related to the implementation of Reg CC, because check fraud was not accurately tracked before 1988, Mr. Brett said.
