Consumers warned of Internet check risks

By: EDMOND JACOBY - Staff Writer | Monday, August 29, 2005 8:34 PM PDT ∞

SAN DIEGO ---- A Rancho Bernardo company that operates a Web-based service issuing checks over the Internet has made changes to the way its service works in response to complaints that it was making life easy for identity thieves.

The complaints came from both San Diego's Privacy Rights Clearinghouse and from the Federal Deposit Insurance Corp., both of which said that Qchex.com was not adequately verifying that its customers were the rightful owners of the bank accounts they were debiting.

The consumer advocacy group said it was most concerned that thieves who discovered someone's bank account number could drain the account by going online and writing checks until the money was all gone. FDIC was established by the federal government to insure bank accounts.

The problem arose because Internet check-writing actually relies on something called a demand draft, which is like a check but requires no issuer's signature. It can be mailed or e-mailed to pay for something, and it is unlikely to be challenged until the owner of the pilfered bank account cries foul, according to the consumer advocacy group.

Some ne'er-do-wells make up the account and routing numbers printed at the bottom of the checks, leaving whoever accepts the instrument holding worthless paper, a letter last month to banks from the FDIC says.

Lissa Jordon, director of marketing communications for Rancho Bernardo-based Qchex.com, a subsidiary of Neovi Data Corp., said the company already has come up with a solution to the problem that will validate the existence of customer bank accounts as well as customer control over the bank account on which the checks are written.

Implementation of security measures that reduced the possibility of customer anonymity after banks began complaining of abuses has reduced the number of complaints, Jordon said.

"If they're doing that, both of those things are tried and true fraud prevention strategies," said Beth Givens, executive director of the Privacy Rights Clearinghouse.

"When we put out the alert, we certainly didn't see any evidence of that on their Web site," Givens said, "but Iím glad to hear they've taken those steps."

A special variation of a bad-check scheme mentioned by Privacy Rights Clearinghouse and by FDIC involves using a bogus check created on an Internet site with a face amount much higher than the price of the goods being purchased and asking for the overage to be refunded, so the perpetrator winds up with both the goods and the cash returned in the transaction.

Contact staff writer Edmond Jacoby at (760) 739-6675 or ejacoby@nctimes.com.