Over the summer, some users of the social media app TikTok said they had discovered a “glitch” in the workings of Chase Bank. They found that they could deposit sizable checks into Chase ATMs, then withdraw the money in cash before the bank realized the checking accounts could not cover the amounts. They tended to describe this as a mistake on the part of Chase Bank and a way for people in desperate need of money to take advantage of unknown loopholes in processes at large institutions.
But what the glitch really represented was the age-old fraudulent practice of check kiting. In a new impact note, TikTok Users Encourage Check Fraud: Banks Must Address the “Glitch” Javelin Strategy & Research Senior Analyst for Fraud and Security Jennifer Pitt explains how this phenomenon happened and what financial institutions should do to protect themselves from similar “glitches.”
A Viral Craze Is Born
The craze started on the first of September. That was the day when several TikTok Chase Bank “glitch” posts went viral, touting that anyone could get so-called free money by taking advantage of a supposed defect at Chase Bank ATMs. Consumers simply needed to deposit a check written for more than the account’s available funds amount. The “glitch” in Chase Bank’s processes would allow consumers to immediately withdraw cash or conduct a wire transfer before the bank realized the check was in excess of the available amount or identified the deposited check as fake.
“Check kiting has been around for a long time, but this is social media,” Pitt said. “So they posted these viral posts of people getting away with mounds of money and riding away in their cars, holding fistfuls of money. There were lines outside of outside of the bank, waiting to take advantage of the glitch.”
Many of the TikTokers who tried to take advantage of this stratagem ended up paying a steep price. After Chase detected the scheme, it reversed the participants’ check deposits, leaving them with large negative account balances. Chase also reiterated that this glitch is, in fact, illegal check fraud, blocking the participants’ accounts and reporting them to authorities for possible criminal charges. The bank has now started suing some of the worst offenders in a bid to recapture some of the most egregious “glitches.”
A strong generational effect is at play here. More than 60% of TikTok users are members of Generation Z. In the fourth quarter of 2023 alone, 42% of Gen Z consumers admitted to engaging in first-party fraud, whereby a legitimate purchase is falsely disputed as fraud. They rationalize this behavior by talking about their dire economic situations and claiming that fraud is a victimless crime because they are stealing from large companies that can afford the losses.
A Growing Problem
By every available measure, check kiting is increasing. According to Nice Actimize, the volume of check deposit fraud increased 4% in 2023 compared with 2022, while the value of deposited fraudulent checks increased by 31%. And this was before the TikTokers discovered the check fraud “glitch.”
So how can banks fight back? For one thing, they can set separate deposit limits for mobile and ATM deposits. Lower deposit limits will make check kiting less attractive to criminals and reduce the amount of check fraud.
Pitt also recommends that financial services immediately close any loopholes in their check deposit processes by investing in real-time check fraud detection and prevention tools. Products like Mitek’s new Check Fraud Defender and Nice Actimize’s IFM Check Fraud offer AI-powered solutions that can help detect check forgeries in real time. They also more efficiently process checks deposited through every channel, including ATM, mobile deposit, and in-branch.
On top of all that, products like these offer their subscribers access to secure consortium data, so financial institutions can gain insight into check fraud trends across the industry.
“Financial institutions of all kinds need real-time check fraud detection,” Pitt said. “Even if we can’t get rid of the float time, having real-time fraud detection would essentially close the gap that permitted these fraudulent TikTok activities to happen.”
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