The use of fake checks originating from foreign countries has increased dramatically. Checks appear to be valid and business accounts are initially credited with funds. Although the check appears legitimate, it often takes weeks for the merchants home bank to learn it was a fake, leaving them liable for the amount and fees associated with it.
Banking in the U.S.
In the past, the banking system in the U.S. worked with check runners. Essentially, when a check was deposited into a bank account, a check runner would arrive at the end of the day, picked up all checks and brought them to the federal reserve. The federal reserve would then go bank to bank cycling and clearing these check transactions. Eventually, the check runner evolved into an electronic practice that processed large volumes of transactions in batches, known today as the ACH network. This network connects banks and validates all checks and balances. The ACH process in the U.S. is just as efficient as the credit card process, both being almost instantaneous.
Banking in Foreign Countries
The banking system in a lot of smaller countries or third world countries is not as efficient as it is in the United States. For example, when depositing a check that originates from a small foreign country bank into any U.S. bank, the U.S. bank may not know for at least 2 weeks if the check has funds to back it. Although the risk of processing a bad check is always present, most U.S. bank policies allow for funds to be temporarily credited into an account. This temporary credit is processed under the assumption that funds are available to back the check. Weeks later when the bank confirms the check has bounced, the merchant is responsible for covering the amount. In addition to covering the check amount, there are fees banks charge for returning a check.
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