By Christopher Quina
Introduction
Check fraud is hardly a new problem, but the modern version of “check washing” has become an increasingly frequent flashpoint between financial institutions.[1] These disputes often center on whether a fraudulent item should be classified as altered or counterfeit under the Uniform Commercial Code (UCC).[2] The stakes are high: that single classification determines which bank will bear the loss when funds are irretrievably withdrawn after a successful scam.[3]The rise of sophisticated chemical washing techniques, coupled with the ease of opening fraudulent accounts at large institutions, has created a fertile ground for disputes between payor and depository banks, with both sides pointing to UCC warranty rules and liability provisions to avoid taking the hit.[4] Because these disputes often turn on minute factual differences and nuanced statutory interpretations, even seasoned banking professionals can find themselves uncertain about how a court might rule.[5]
In many recent scenarios, a community bank’s customer writes a legitimate check—often for a routine bill payment—that is intercepted, chemically altered, and deposited at a larger bank by the fraudster.[6] Once the funds clear, the criminal withdraws the money immediately, leaving the original payee unpaid and the drawer’s account debited.[7]The payor bank then demands reimbursement from the depository bank, alleging a breach of the UCC presentment warranties.[8] In response, the depository bank argues that the check was not altered at all, but instead was a counterfeit one for which the payor bank bears responsibility.[9] This Blog examines the mechanics of check washing scams, the legal framework that governs liability allocation, and the preventive steps that both financial institutions and customers can take to mitigate the risk.
I. Anatomy of a Check Washing Scheme
Check washing is a type of fraud in which criminals alter the details of a genuine check to redirect funds to their own account.[10] The process typically begins with theft; fraudsters steal checks from residential mailboxes, business mail drops, or blue United States Postal Service (USPS) collection boxes.[11] Mail theft remains one of the most common entry points for such scams, with thieves often targeting envelopes that appear to contain bill payments or business checks.[12] Once in possession of the check, the fraudster uses common household chemicals—such as acetone, bleach, or rubbing alcohol—to remove the payee and amount while leaving the original signature intact.[13] This “washing” process transforms the check into a blank signed instrument on which the criminal can insert a new payee and any amount they choose.[14] In many cases, a modest payment is converted into a check for thousands of dollars payable to the fraudster or a recruited “money mule.”[15]
The fraudster then deposits the altered check, often into an account opened at a large bank using false identification or through the cooperation of an accomplice.[16] Deposits may occur via teller, ATM, or mobile check capture, depending on the fraudster’s comfort level and the bank’s detection systems.[17] In many instances, the deposit itself appears routine and attracts no immediate attention.[18] Once the item clears, the funds are withdrawn in cash or transferred to other accounts before the fraud is detected.[19] In many cases, the speed of this process leaves little opportunity for either bank to place a hold or reverse the transaction once the funds are in motion.[20]
Victims—both individual and business customers—typically discover the fraud only when the intended payee reports nonpayment or when they review their account statements and notice the fraudulent transaction.[21] The payor typically reports the suspected fraud to the payor bank, which then investigates the transaction.[22] At that point, the money is usually not recoverable, prompting the payor bank to seek recovery from the depository bank on the theory that the check was altered and therefore breached the UCC presentment warranties.[23] By the time these disputes surface, the trail of evidence is often cold, making it even more difficult to prove exactly how the fraud occurred and which party should bear the loss.[24]
II. The Legal Framework: Altered vs. Counterfeit
Classifying a fraudulent check as either “altered” or “counterfeit” under the UCC dictates which bank absorbs the loss.[25] The distinction traces back to the 1762 English case Price v. Neal, where the Court of King’s Bench held that the drawee—now, payor—bank bears the loss for paying a check with a forged drawer’s signature, because it is in the best position to know its customer’s signature.[26] The UCC incorporates this principle by assigning liability for forged or counterfeit checks to the payor bank, and liability for altered checks to the depository bank, under the rationale that the depository institution is better positioned to detect alterations before accepting the item.[27]
An altered check, under the UCC, must be an original, genuine check that has been physically modified, such as by changing the payee or amount.[28] By contrast, a counterfeit check is one that the fraudster fabricates or substitutes for the original, including situations where the fraudster creates a duplicate from an image of a genuine check and prints it on blank check stock.[29]
This distinction was pivotal in Provident Savings Bank, F.S.B. v. Focus Bank, where the U.S. District Court for the Eastern District of Missouri analyzed whether a fraudulent check was “altered” or “counterfeit” under Missouri’s version of the UCC.[30] In that case, a fraudster obtained an image of a legitimate check, digitally manipulated it to change the payee and amount, and then printed it on commercially available blank check stock.[31] Although the printed item appeared to contain the original drawer’s genuine signature, it was in reality an unauthorized reproduction.[32] Under Missouri’s UCC, an alteration occurs when a genuine instrument is physically modified—such as by changing the payee name or amount directly on the original check—whereas a counterfeit check is a fabricated or substituted instrument that replaces the original altogether.[33] The court emphasized that a counterfeit is not limited to crude forgeries but can include sophisticated reproductions that are “identical in every respect” to the original except for undetectable changes because such an item is not the original instrument at all.[34] Applying this reasoning, the court held that the fraudulent check at issue was counterfeit, not altered, because it did not involve the physical modification of the original paper check; rather, the original was replaced by an entirely new document bearing a forged signature and unauthorized content.[35] As a result, the loss allocation rules placed liability on the payor bank, not the depository bank, even though the counterfeit was visually indistinguishable from the genuine check and would likely pass ordinary inspection.[36] This interpretation emphasizes how courts focus on the origin of the physical instrument—whether it is the original paper or a substituted reproduction—when applying UCC presentment warranty provisions, a distinction that can decisively shift which bank bears the financial loss.[37]
For community banks caught in these disputes, the altered vs. counterfeit distinction can be frustratingly fact-specific, especially in cases involving chemically washed checks.[38] A physically washed original check fits the definition of altered, placing the loss on the depository bank.[39] By contrast, if the original is replaced with a duplicate or substituted check—even if it looks identical—the law treats it as counterfeit, shifting liability to the payor bank.[40]
III. Prevention and Risk Mitigation
Addressing check fraud requires a multi-pronged approach that targets vulnerabilities from various angles.[41]This section outlines three key strategies for prevention and mitigation. First, it examines customer-facing strategies that empower consumers and businesses to reduce their personal risk by adopting secure payment and mailing practices. Next, it discusses bank-to-bank communication, highlighting the critical importance of rapid detection and adherence to strict legal deadlines to minimize losses once fraud occurs. Finally, it explores institutional safeguards, detailing the technological and physical security measures that banks can implement to detect and deter fraudulent activity at scale.
A. Customer-Facing Strategies
Both consumers and businesses can take proactive steps to reduce their risk of becoming victims of check washing fraud.[42] The simplest and most effective way is to avoid mailing paper checks altogether, opting instead for secure electronic payment methods such as ACH transfers, online bill pay, or mobile payment services.[43] When checks are necessary, writing them with indelible black gel ink can make chemical washing more difficult, as certain inks resist the solvents typically used in the process.[44] Customers should also avoid leaving mail in residential boxes overnight, and instead use USPS letter slots or mail checks directly from a post office.[45]
Businesses that must issue checks should consider adopting positive pay services, which require the bank to match each presented check against a list of issued checks by number, date, and amount before honoring it.[46] These services significantly reduce the risk of both altered and counterfeit items being paid, though they are not universally used due to high costs and administrative requirements.[47]
B. Bank-to-Bank Communication
Prompt detection and communication are critical in minimizing losses once fraud arises.[48] Banks should train front-line staff to examine payee and amount fields for irregularities and to compare signatures and check stock against known exemplars.[49] If a fraudulent check is discovered after presentment, immediate notice to the other bank is essential, as the UCC’s “midnight deadline” for returns is strictly enforced and missing it can result in automatic liability for the payor bank.[50] Under UCC § 4-302, a payor bank that receives a demand item becomes accountable for the amount of the item if it retains the item beyond midnight of the banking day of receipt without settling.[51] The bank is also accountable if it fails to pay, return, or send a notice of dishonor before its midnight deadline.[52] This deadline—midnight of the next banking day after receipt—is a bright-line rule.[53] Missing it, even by minutes, generally results in strict liability, regardless of whether the bank could have otherwise challenged the item on alteration or counterfeit grounds.[54] This deadline makes rapid fraud detection and immediate interbank communication critical once a bank identifies a suspect item.[55]
C. Institutional Safeguards
On the institutional level, banks should invest in fraud detection technology capable of analyzing check images for signs of alteration or duplication.[56] This technology can include software that detects pixel inconsistencies from digital manipulation, as well as machine learning models trained on known counterfeit patterns.[57] Additionally, using check stock with multiple embedded security features, such as watermarks, microprinting, and chemical sensitivity, can make both alteration and counterfeiting more difficult.[58]
Conclusion
The altered vs. counterfeit classification in check fraud disputes is not a mere semantic distinction—it determines which bank bears the financial loss when funds vanish after a scam.[59] As cases like Provident Savings Bank v. Focus Bank illustrate, this determination hinges on whether the fraudulent item is the original instrument physically modified, or an entirely new creation masquerading as the original.[60] For banks, understanding and applying this distinction consistently is critical not only for litigation strategy but also for internal fraud prevention protocols.[61]
For consumers and businesses, the message is clear: reduce reliance on paper checks, adopt secure mailing and writing practices, and monitor accounts vigilantly.[62] For financial institutions, the combination of customer education, enhanced detection technology, and adherence to UCC timelines remains the best defense.[63] In an era where criminals can “wash” a check in minutes and move funds in seconds, both sides must act quickly—and knowledge of the altered vs. counterfeit framework can mean the difference between recovering a loss and absorbing it entirely.[64]
While check fraud remains a costly problem, its future is more complicated as consumers are steadily reducing their use of paper checks. [65] In 2024, only 6% of bill payments were made by check, a 12-percentage-point drop from 2020, with most of that share shifting to electronic transfers and card payments.[66] As fewer checks circulate, the absolute number of altered or counterfeit disputes may shrink—but the relative severity of each incident could increase, given that checks are now disproportionately used for higher-value transactions.[67]
Looking ahead, courts and lawmakers may face pressure to refine the altered vs. counterfeit framework to address hybrid fraud schemes that combine physical alterations with digital reproductions.[68] Advances in printing, scanning, and artificial intelligence could blur the line between alteration and counterfeiting even further, making the physical-paper test less effective.[69] Possible reforms include clarifying definitions in the UCC, creating evidentiary presumptions based on image analysis, or adopting new presentment warranties that account for digital check creation. In the meantime, the altered vs. counterfeit distinction will remain a pivotal, but potentially evolving, fault line in allocating liability between banks.[70] Ultimately, the institutions that adapt the fastest in both legal strategy and fraud prevention will be in the best position to avoid costly disputes and maintain customer trust as the speed of fraud continues to outpace the speed of traditional detection.[71]
[1] See generally Sydney P. Boots, Counterfeit vs. Altered Checks, Davenport, Evans, Hurwitz & Smith, LLP (Feb. 2, 2023), https://dehs.com/counterfeit-vs-altered-checks/ [https://perma.cc/VD7Y-FLJA]; see Check Fraud, Off. of the Comptroller of the Currency, https://www.occ.gov/topics/consumers-and-communities/consumer-protection/fraud-resources/check-fraud.html [https://perma.cc/4V96-8ZR5] (last visited Aug. 12, 2025) (defining “check washing” as a type of fraud in which criminals alter the details of a genuine check to redirect funds to their own account).
[2] Id.; U.C.C. § 3-407(a) (defining “alteration” as an “unauthorized change in an instrument that [modifies] the obligation of a party, or [] an unauthorized addition . . . to an incomplete instrument relating to [that] obligation”).
[3] Boots, supra note 1.
[4] Id.
[5] See generally Jim Hitchcock, Check fraud in America: a persistent challenge for banks amid evolving threats, A.B.A. Banking J. (Nov. 2, 2023), https://bankingjournal.aba.com/2023/11/check-fraud-in-america-a-persistent-challenge-for-banks-amid-evolving-threats/[https://perma.cc/N6SS-2PV6].
[6] Understanding Check Washing and How to Prevent It, AbbyBank (Aug. 30, 2024), https://www.abbybank.com/re source-center/newsroom/blog/understanding-check-washing-and-how-to-prevent-it [https://perma.cc/87GK-V5N6].
[7] Id.
[8] See generally Boots, supra note 1; U.C.C. § 3-417. The UCC’s presentment warranties require the depository bank, when presenting a check for payment, to warrant that it is entitled to enforce the item. The bank must also warrant that the check has not been altered, that the drawer’s signature is authorized, and, for remotely created items, that the issuance was authorized. If any of these warranties are breached, the payor bank may recover the amount paid along with related expenses and interest.
[9] See generally Boots, supra note 1.
[10] Check Fraud, Off. of the Comptroller of the Currency, https://www.occ.gov/topics/consumers-and-communities/consumer-protection/fraud-resources/check-fraud.html [https://perma.cc/4V96-8ZR5] (last visited Aug. 12, 2025).
[11] DeNicola, supra note 8.
[12] Mail Theft-Related Check Fraud Is on the Rise, FBI Internet Crime Complaint Ctr. (Jan. 27, 2025), https://www.ic3.gov/PSA/2025/PSA250127 [https://perma.cc/CRY7-N3TZ].
[13] Hari Ravichandran, What Is Check Washing? How Can You Protect Yourself?, Identity Guard (Aug. 3, 2023), https://www.identityguard.com/news/check-washing [https://perma.cc/YQ3U-TLFB].
[14] Check Fraud, supra note 10.
[15] DeNicola, supra note 8; see also Money Mules, FBI, https://www.fbi.gov/how-we-can-help-you/scams-and-safety/common-frauds-and-scams/money-mules# [https://perma.cc/V5MK-AQX6] (last visited Aug. 12, 2025) (defining a “money mule” as a person who transfers or moves illegally acquired money on behalf of another, thereby helping criminals launder proceeds from fraud or other crimes while making it harder for law enforcement to trace the funds).
[16] DeNicola, supra note 8.
[17] Id.
[18] Id.
[19] Id.
[20] See generally U.C.C. § 4-302.
[21] Ravichandran, supra note 13.
[22] See generally id.
[23] See generally Boots, supra note 1.
[24] See generally Ravichandran, supra note 13; see generally U.C.C. § 4-208.
[25] Boots, supra note 1.
[26] Id. (citing Price v. Neal (1762) 97 Eng. Rep. 871 KB).
[27] Boots, supra note 1.
[28] Wachovia Bank, N.A. v. Foster Bancshares, Inc., 457 F.3d 619, 620 (7th Cir. 2006); U.C.C. § 3-418(c).
[29] Provident Sav. Bank, F.S.B. v. Focus Bank, 548 F. Supp. 3d 862, 868 (E.D. Mo. 2021) (citing Wachovia Bank, 457 F.3d at 622).
[30] Provident Sav. Bank, 548 F. Supp. 3d at 864.
[31] Id. at 865.
[32] Id. at 865–66.
[33] Id. at 867 (citing Mo. Rev. Stat. § 400.3-407(a)–(b)).
[34] Provident Sav. Bank, 548 F. Supp. 3d at 867–68.
[35] Id. at 868.
[36] Id. at 868–69.
[37] Id. at 869.
[38] See generally Hitchcock, supra note 5.
[39] Boots, supra note 1.
[40] Id.
[41] See generally Ravichandran, supra note 13.
[42] Check Fraud, supra note 10.
[43] Ravichandran, supra note 13; What Is an ACH Transaction?, Consumer Fin. Prot. Bureau (May 14, 2024), https://www.consumerfinance.gov/ask-cfpb/what-is-an-ach-transaction-en-1065/ [https://perma.cc/CF2S-5UQ4] (defining an ACH transaction as an electronic money transfer made between banks and credit unions across the Automated Clearing House network, used for various payments including direct deposit, bill payments, and transfers initiated through online services).
[44] Check Fraud, supra note 10.
[45] Id.
[46] Understanding Check Washing and How to Prevent It, supra note 6.
[47] Id.; Positive Pay System Definition and Benefits for FIs and Business Accounts, Advanced Fraud Sols. (Sep. 17, 2024), https://advancedfraudsolutions.com/insights/positive-pay-for-fis-and-businesses-defend-against-deposit-fraud / [https://perma.cc/675P-BV2A].
[48] See generally Check Fraud, supra note 10.
[49] Your Check Fraud Training Investigation Checklist, Advanced Fraud Sols. (Jan. 16, 2024), https://advancedfraudsolutions.com/insights/check-fraud/your-check-fraud-training-investigation-list/ [https://perma.cc/7KPB-WMBD].
[50] Id.; U.C.C. § 4-302.
[51] Your Check Fraud Training Investigation Checklist, supra note 48.
[52] Id.
[53] Id.; Provident Sav. Bank, F.S.B. v. Focus Bank, 548 F. Supp. 3d 862, 866 (E.D. Mo. 2021); see also Cent. Bank & Tr. Co. v. First Nw. Bank, 332 F. Supp. 1166, 1169 (E.D. Mo. 1971).
[54] U.C.C. § 4-302; Provident Sav. Bank, 548 F. Supp. 3d at 866; see also Cent. Bank & Tr. Co., 332 F. Supp. at 1169.
[55] See generally Provident Sav. Bank, 548 F. Supp. 3d at 866; see generally Cent. Bank & Tr. Co., 332 F. Supp. at 1169.
[56] See generally Understanding Check Washing and How to Prevent It, supra note 6.
[57] See generally U.S. Dep’t of the Treasury, Treasury Announces Enhanced Fraud Detection Processes, Including Machine Learning AI, Prevented and Recovered Over $4 Billion in Fiscal Year 2024 (Oct. 17, 2024), https://home.treasury.gov/news/press-releases/jy2650[https://perma.cc/DRZ7-C4UM].
[58] Understanding Check Washing and How to Prevent It, supra note 6.
[59] See generally Boots, supra note 1.
[60] See generally Provident Sav. Bank, F.S.B. v. Focus Bank, 548 F. Supp. 3d 862 (E.D. Mo. 2021).
[61] See generally Boots, supra note 1.
[62] Understanding Check Washing and How to Prevent It, supra note 6.
[63] Id.
[64] See generally Boots, supra note 1; Ravichandran, supra note 13.
[65] By the Numbers: Decline in Consumers’ Use of Paper Checks, Fed. Rsrv. Bank of Atlanta (June 2, 2025), https://www.atlantafed.org/blogs/take-on-payments/2025/06/02/by-the-numbers-decline-in-consumers-use-of-paper-checks[https://perma.cc/LA73-6M3V].
[66] Id.
[67] Id.; Claire Greene & Joanna Stavins, U.S. Consumers’ Use of Personal Checks: Evidence from a Diary Survey, Fed. Rsrv. Bank of Atlanta, Research Data Report No. 24-2, Aug. 2024, https://www.atlantafed.org/-/media/documents/banking/consumer-payments/research-data-reports/2020/02/13/us-consumers-use-of-personal-checks-evidence-from-a-diary-survey/rdr2001.pdf [https://perma.cc/JZH4-H9NJ].
[68] See generally Boots, supra note 1.
[69] See generally M. Scott Jones, Back with a Vengeance: The Challenges of Check Fraud, A.B.A. Banking J., (Mar. 15, 2023), https://bankingjournal.aba.com/2023/03/back-with-a-vengeance-the-challenges-of-check-fraud/ [https://perma.cc/5S8K-HN3S].
[70] Id.
[71] See generally Your Check Fraud Training Investigation Checklist, supra note 48.