Larry G. Harcum is waging a one-man crusade against check fraud.
Mr. Harcum, the executive vice president at $230 million-asset Bank of Tidewater in Virginia Beach, wants to stop people from printing checks at home on laser printers - a practice he claims has opened the door to fraud.
Regulators could help by authorizing banks to refuse to process any check having routing numbers that are not printed with special magnetic ink, Mr. Harcum said. Such ink is used for most professionally printed checks, but rarely for the homemade variety.
Therein lies the problem. Laser printing has contributed to a rise in fraud as well as the number of legitimate checks that cannot be read by banks' automated sorters, and in both instances the bank loses money, Mr. Harcum said.
"We should nip this now" before the growing popularity of at-home check printing can lead to a "nationwide epidemic" of fraud, he said.
Over the past two years, Mr. Harcum said, Bank of Tidewater has received 12 fraudulent laser-printed checks, and in one case it lost $17,000 after a customer's new business partners passed him bogus laser-printed cashier's checks. They did not arouse suspicion because they bore another bank's name, address, and routing number.
Mr. Harcum has tried to get help from the Federal Reserve Bank of Richmond and the Virginia Bankers Association. In June the Richmond Fed's Operations Advisory Council, a committee of 25 bankers and credit union officials, agreed to study the problem, cull data from members, and decide whether to pursue the issue on a national level.
Mr. Harcum's presentation prompted Hagerstown Bank & Trust Co. in Hagerstown, Md., to start scrutinizing checks printed with nonmagnetic ink.
"We are finding a lot of these laser-printed checks, and it takes a lot of man-hours to get them processed," said Jay Lauver, senior vice president and chief operating officer of the $407 million-asset bank. Hagerstown Bank is contacting customers and asking them "to work with us in getting this problem corrected," he said.
Mr. Harcum recommends barring the sale of magnetic ink to consumers, though he acknowledges that would be hard to implement.
In any case, the Virginia banker said, it would save banks time and money if regulators required that checks be printed with magnetic ink. When operators have to key in the data for checks rejected by sorting machines, it costs Bank of Tidewater about 80 cents per check, Mr. Harcum said. In July, 344 of the 8,644 checks that it processed lacked magnetic ink.
