Cheque kiting is an increasingly common type of financial scam where the scammer intentionally writes a cheque with a value greater than the account balance. In 2008, 60% of fraudulent financial losses involved cheques. It’s important to understand the different types of cheque fraud and how to protect yourself from cheque kiting.
What is Cheque Kiting?
Cheque kiting happens when someone writes a cheque from a bank account with insufficient funds to cover the cost of that cheque, deposits it into another bank account, and then withdraws the money.
Since cheques take time to clear, fraudsters get away with the money before the bank finds out that the bank account the cheque was written from has insufficient funds. The scammer gets away, and the bank has essentially given them free money.
Types of Cheque Kiting
Identifying the types of cheque kiting is the first step in protecting yourself against it. There are three kinds of cheque kiting:
Bank Cheque Kiting / Simple Cheque Kiting
A cheque is written from an account with insufficient funds. This cheque is then deposited at another bank, and the money is withdrawn immediately. The cheque at the first bank takes time to clear, so fraud isn’t detected until several days later.
Endless Cheque Kiting / Complex Cheque Kiting
Cheques are written from accounts with insufficient funds at multiple banks. A scammer writes a cheque from one bank and deposits it into an account at another bank. The second bank credits the account because it assumes the cheque is genuine. The amount of the cheque is then withdrawn and deposited at the first bank to cover the cheque as it was based on insufficient funds. Cheques are written between banks where the accounts have insufficient funds, but the banks continue to assume the cheques are genuine and credit the accounts. The cycle can continue until one or more banks realize it is a scam.
You got asked to connect your bank account — what does that mean?
Consumer Cheque Fraud
This scam is most commonly seen online in marketplaces like Facebook Marketplace or Kijiji. Someone writes you a cheque for something they want to buy and asks you to wire transfer part of it back to them because the cheque is for an amount greater than the asking price. The cheque bounces and you are responsible for the entire amount of the bounced cheque. You also lose what you were selling.
Additional Reading
How to Protect Yourself From Cheque Kiting
There are several things you can do to protect yourself from cheque kiting:
- Never accept wire transfers and never wire money to strangers. You never know who’s on the other end and if they are honest.
- Know what a fake cheque looks like and know how to spot a cheque scam.
- Use cash when dealing with a financial transaction in online marketplaces like Kijiji or Facebook Marketplace.
- Watch out for red flags. If an offer sounds too good to be true, it probably is. Scammers will pressure you to act quickly. An honest person will agree to your terms, including paying in cash.
Learn how to transfer money to a bank account.
What Should You Do If You’ve Fallen Victim of Cheque Kiting or Fraud?
If you’re a victim of cheque kiting or cheque fraud, contact the local police or the RCMP. You may also consider contacting the Financial Consumer Agency of Canada, the Canadian Anti-Fraud Centre. Although you may not get your money back, you can help to ensure that scammers will stop getting away with their crimes.
Cheque kiting is becoming increasingly common in the world of financial fraud. Knowing the different kinds of cheque kiting and how they work will help you to protect yourself against this scam. However, even the best of us still fall victim to scams sometimes. If you’ve been a victim of cheque kiting, there are several organizations you should contact. Overall, if you know the basics of cheque kiting and how to protect yourself, you should be able to protect yourself.
