Fidelity Responds to Check Fraud Glitch by Slashing Deposit Limits — Is It Enough?
- mRDC has seen a 90% increase in suspicious activity from 2021 to 2023
- Fidelity responds to their money "glitch"
- Investment firms need to follow in the footsteps of FIs
Mobile RDC (mRDC) may be the most abused deposit channel for check fraud, with the Insikt Group reporting a 90% increase in suspicious activity from 2021 to 2023. The ability to download an app -- whether its from a financial institution or even an investment firm -- to deposit checks in an instant, allows fraudsters to take advantage of the anonymity, funds availability policy (or possible flaws), and the fact that the physical check does not land in the hands of the FI or investment firm.
This puts FIs and investment firms in a conundrum. They want to enable their customers to deposit their funds easily, but consequently open themselves up to check fraud. Unfortunately, many of them are not taking the necessary steps to secure this deposit channel; they are not equipping themselves with tools like image forensic AI technology that can help detect counterfeits, forgeries, and alterations. This has led to some unfortunate results.
Fidelity Targeted for Check Fraud
Recently, we covered research from Frank McKenna, author of the Frank on Fraud blog, where he notes that "the mention rate on criminal channels has spiked by 300% and is on a pace to increase by over 700% by the end of September." While noteworthy, details were sparse about the actual fraud being attempted.
[Fidelity] cut the amount certain customers can deposit into their cash management accounts from $100,000 to $1,000 and placed a 16-business-day hold on some account holders’ deposits before that money can be withdrawn or invested, The Wall Street Journal (WSJ) reported Friday (Sept. 27), citing unnamed sources.
Additionally, MarketWatch notes:
The scheme was similar to what some Chase Bank customers recently did — deposit fake or falsified checks in hopes of immediately being able to withdraw or invest those funds.
From the sources, we can surmise that fraudsters were able to perform a check fraud scheme similar to what occurred at JPMorgan Chase ATMs, where individuals deposited large checks into a Fidelity account -- most likely drawn off the same Fidelity account -- and withdrew funds quickly before Fidelity was able to determine that the funds were not sufficient.
Fidelity Fighting Back -- Is It Enough?
Fidelity has taken their first step in fighting back, reducing the ability of some accounts to deposit large checks and putting a 16-day hold on certain accounts suspected of fraud.
“We recently identified individuals attempting to commit fraud using their Fidelity checking accounts,” a Fidelity spokesperson said, per the report. “To be clear, these individuals were committing fraud with respect to their own accounts. No other customer information, accounts or assets were at risk.”
The new restrictions focus on cash management accounts and do not affect retirement accounts, the report said.
Fidelity has made a move to reduce check fraud -- this is just the first step. As FIs know, a multi-layered technology approach is required to protect themselves and their customers. Investment firms need to follow in the footsteps of FIs by leveraging the same technologies -- behavioral analytics, image forensic AI, consortium data, and dark web monitoring -- to ensure that their customer funds are safe.