Who Is Using Your Checkbook? FDIC Warns About Qchex.com


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Copyright © 2005-2014
Privacy Rights Clearinghouse
Posted August 14, 2005
Revised October 2006

Update On October 2, 2006, Qchex agreed to a temporary restraining order to halt "unfair business practices," according to the Federal Trade Commission. The FTC has asked the U.S. District Court to order a permanent halt to the illegal operation and to order Qchex to "give up their ill-gotten gains.". Read more at www.ftc.gov/opa/2006/10/qchex.htm.

San Diego, CA - While many consumers are scrambling to reduce their risk of identity theft, one business appears to be making it easier than ever to forge checks. Qchex.com allows customers to create checks without verifying the account holder's identity, according to authorities.

The Federal Deposit Insurance Corporation (FDIC) has issued a warning to banks receiving checks created by Qchex. (www.fdic.gov/news/news/SpecialAlert/2005/sa8205.html)

Qchex.com is an online service that allows users to create checks that can be printed or sent by e-mail to recipients who could then print them. Because Qchex says in its Terms of Use that it does not verify the account holder's identity when the check is created, there is a risk of fraud in some, but not all, checks issued via Qchex.

The check for $1000 in your mail came as a surprise. You had hoped your 10-year-old blue art deco table would fetch $100 on the Internet auction. Even more surprising was the buyer's request to ship the table out of the country.

Qchex, a subsidiary of Neovi Data Corporation, San Diego, California, will create a check for a person if they provide an account number, a routing number and a valid email address. Qchex does not have a process for verifying the person as the legitimate account holder.

The Qchex.com check you receive from your overseas buyer looks legitimate. It has the account number and all of the proper fields. Except one. There is no signature. Instead a printed name is on the line where the cursive signature would normally appear.

Many checks issued by this method have no signature. These types of checks are called demand drafts. There is a high risk of fraud involved in demand drafts, because they are created by a third party. Unlike swiping a debit card or signing a check, no tangible steps need to be taken by the account holder to create a demand draft.

Although your table is a unique combination of functionality and beauty, you are suspicious of the buyer. When you receive the check you wait for it to clear before shipping the table and sending the buyer the amount he overpaid.

Qchex's fraud prevention policies offer a new twist on passing the buck. According to Qchex, there are no methods available to provide 100% protection against the attempt of fraud. Instead of verifying the account holder's identity, which would offer at least some level of protection, Qchex points out that banks will reimburse you in the event of fraud as long as you report the incident. Qchex reassures its customers that the FDIC insures the funds used to create checks up to $100,000.

A month after you shipped the table and wired the extra $900 back to the buyer, your bank alerts you that the check was fraudulent and the $1000 is being debited from your account so it can be returned to the rightful owner.

Some checks created via Qchex may be fraudulent because there is a risk that the account holder has been a victim of identity theft. This is an important distinction from other types of fraudulent checks. Waiting for the check to clear is not a suitable precaution in this situation. There may be sufficient funds in the account for the check to clear, but the fraud will only become apparent after the account holder notices the identity theft. Once the identity theft is recognized, the funds will be removed from the account of the recipient of the fraudulent check.

The FDIC has warned that some fraudulent checks issued via Qchex.com are associated with the sort of scheme described in this alert. If you are buying or selling over the Internet, you should be cautious about the form of payment you accept.

Because of the high risk of fraud, accepting payment by check for items bought over the Internet is strongly discouraged. Often people use a third-party payment service, such as PayPal, Amazon.com Payments, Yahoo! PayDirect, or VeriSign Inc., when buying and selling over the Internet. While these payment services have risks, they are a better option than checks. Please note that the federal law that allows credit card charges to be disputed does not apply to these payment services. Read the individual payment service's policy on disputes and fraud before depositing money into an account. When using a third-party payment service the following tips can help reduce your risk:

  • Read the privacy policy.
    Check the payment service with TRUSTe (www.truste.org) or the Better Business Bureau (www.bbb.org).
  • Do not respond to email messages from the service asking to confirm account details. These are likely to be phishing scams (www.antiphishing.org).
  • Check the seller's history with the payment service.
  • Check the seller's ratings from past buyers.
  • Use extra caution if the item is very expensive, sold out in stores, or it is around the holidays.

Consumers can file complaints about transactions involving Qchex checks that turn out to be fraudulent with the Federal Trade Commission (FTC) by mail, phone or Internet.

Federal Trade Commission
600 Pennsylvania Ave., N.W., CRC-240
Washington, D.C. 20580
(877) FTC-HELP (877-382-4357)
www.ftc.gov (click on "File a Complaint" at the top, center).

The FDIC asks that you forward any information about these checks to the FDIC's Cyber Fraud and Financial Crimes Section, 550 17 th Street, N.W., Room F-4004, Washington, D.C. 20429. Or contact the FDIC electronically at alert@fdic.gov. Information related to federal deposit insurance or consumer issues should be submitted to the FDIC using an online form that can be accessed at http://www2.fdic.gov/starsmail/index.asp.

 

Copyright © Privacy Rights Clearinghouse. This copyrighted document may be copied and distributed for nonprofit, educational purposes only. For distribution, see our copyright and reprint guidelines. The text of this document may not be altered without express authorization of the Privacy Rights Clearinghouse.


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