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>Check-kiting is the illegal act of writing a check from a bank account without sufficient funds and depositing it into another bank account, explains MagnifyMo
by daenz 7y ago
>Check-kiting is the illegal act of writing a check from a bank account without sufficient funds and depositing it into another bank account, explains MagnifyMoney.com. “Then, you withdraw the money from that second account before the original check has been cleared.”
Can someone explain why banks don't have systems in place to detect this kind of fraud? It seems like even the most minimal communication between banks would help detect it.
- rwmurrayVT 7y agoThis will not work well unless the bank account has some age to it and previous transactions. They are legally required to make $200 available immediately. Most major banks will clear it all to you overnight after 30 days if you deposit it in time for the ACH to process overnight. That will require the account it is written from to actually have the funds in the account.
- noir_lord 7y agoBecause in some parts of the world banking is a historical pile of hacks on hacks on hacks held together with bailing wire and twine. Also banking is a hugely complex problem involving two of the hardest things to deal with, money and people. It's particularly the case where you have a lot of small banks geographically spread out running a variety of legacy systems all of which talk to each other in weird and whacky ways. I'm surprised kiting still works though.
- hsk823 7y agoLet's be honest. Many enterprises and business processes are hack upon hack all held together with duct tape and glue.
- nunja 7y agoIt would be amazing if someone could come with a useful technology that solves this particular set of problems. Something like a public distributed ledger where all transactions are validated by a majority of actors in a trustless system ... oh wait.
- xeromal 7y agoIf the world used that system, we'd run out of electricity
- pavel_lishin 7y agoGosh, if only that system didn't have its own huge set of drawbacks.
- opportune 7y agoYeah and we can secure it by requiring people to waste huge amounts of electricity to prove their stake in the system!
- spookthesunset 7y ago> wait I'll wait! 'Cause if it got even remotely adopted and mainstream, I'll be waiting... for years or decades.... before I can ever hope to make a single transaction. Yup. Nothing like Satoshi's Glorious Blockchain and its blazing fast 4 transaction per second reference implementation that is Bitcoin.
- unoti 7y agoBanks do sometimes verify funds manually, but keep in mind that verifying a balance still isn't a guarantee that a check will clear. The balance can change between the time of balance verification and check clearing. What's needed to fully solve something like this is to put a block or reservation on a chunk of funds. So when bank A checks whether there's sufficient balance at bank B to clear a check, they'd need to put some kind of hold on those funds at bank B to have confidence that the check will clear. This is basically what credit card authorizations do, especially if the credit card is attached to a checking account.
- jfk13 7y ago> if the credit card is attached to a checking account Isn't that a debit card (rather than a credit card)?
- Someone 7y agoMore or less the same reason as to why the USA still uses checks as much as it does: the USA’s banking system lives in the 1950s or thereabouts. Example: https://en.wikipedia.org/wiki/Paycheck https://en.wikipedia.org/wiki/Paycheck says ”A paycheck, also spelled pay check or pay cheque, is traditionally a paper document (a cheque) issued by an employer to pay an employee for services rendered. In recent times, the physical paycheck has been increasingly replaced by electronic direct deposit […] A salary statement, commonly called a payslip, pay stub, paystub, pay advice, or sometimes paycheck stub or wage slip, is a document that an employee receives either as a notice that the direct deposit transaction has gone through or that is attached to the paycheck.“ The French and Swedish versions (sorry, can’t check the other ones due to language issues) of that page only discuss the pay slip, I think because “recent times” started half a century ago in those countries. I think it also is telling that that page doesn’t even have a German or Dutch version linked to it, while https://de.wikipedia.org/wiki/Entgeltabrechnung https://de.wikipedia.org/wiki/Entgeltabrechnung (German for ‘pay slip’) exists It might be interesting for a poll: when did you last receive a physical pay check, and in which country?
- xeromal 7y agoIt's the price you pay when being the first to try something out. You figure out all the issues for the next generation. For the majority of professional Americans, we receive our pay via direct deposit so we never see a pay check. The working lower-class still uses pay checks since they're paid on a weekly basis. I think when margins are thinner, it's cheaper to write checks than to set up direct deposit.
- jessaustin 7y agoLots of lower-income people don't have a bank account into which direct might be deposited. They can still pay Wal-Mart a nominal fee to cash the check. No employer is willing to pay cash because IRS are such hardasses: they claim that cash payments can't be audited. Also, a cashed check is proof that an employee actually got paid, which is important for certain types of employees.
- Someone 7y ago
- toast0 7y ago> Can someone explain why banks don't have systems in place to detect this kind of fraud? It seems like even the most minimal communication between banks would help detect it. The US banking system is built on a foundation of batched communication, with batches arriving via mail several days later. Each bank is operating as an independent ledger, with no global awareness; so, while each bank can see the deposits may be coming from the same account, they wouldn't necessarily see that the check redemptions were going into the same account. It's not unreasonable to get a series of checks from the same person, or to make a series of payments to the same bank. Because of the delays are inconsistent and sometimes complex, it's more convenient to act on the shared fiction of deposits being immediate, and take escalating punitive action when the fiction unravels. Ex: large fees for both despotiting a check that is not honored, and writing a check that is not honored when presented. If it happens frequently, your account may be limited to transacting only in fully cleared funds, and you may be blacklisted from banking through credit reporting companies, or referred to law enforcement. However, there have been several changes to shorten clearing times in (somewhat) recent times, including Check 21 in 2004, which allowed all checks to be processed as images instead of paper, and Same Day ACH starting in 2016, with planned enhancements through 2021. As the clearing window shortens, kiting becomes less feasible and useful.