By Lisa Wines
ABSTRACT:
While the use of electronic payment methods in the United States steadily increases, we still depend on paper checks more than any other industrialized nation in the world. Reliance on paper checks carries with it logistical and security limitations, which create a degree of exposure to fraud for all parties involved. As this exposure has become more apparent in recent years, Congress recently passed The Check Clearing for the 21st Century Act as a step toward a fully digital payment system. While the Uniform Commercial Code governs transactions involving paper checks, electronically converted checks and substitute checks are governed by the National Automated Check Clearinghouse Operating Rules and Regulation E. When State and Federal law conflict on a check-related issue, the Act preempts the inconsistent laws.
This Act allows financial institutions to provide substitute checks instead of the originals, which alleviates many logistical limitations but also opens many new possibilities for fraud. This Note proposes that this new Act may simply be trading off old problems for just as many new ones, since the system it endorses is not prepared to deal with the electronic frauds that are bound to develop in the face of the new rules. Investigation and prosecution of frauds involving electronic or duplicate checks are also expected to be less effective, since only original checks carry certain forensic and other evidence that often helps to identify criminals. Such critical evidence includes handwriting analysis, pressure points, and fingerprints on the original document. As is true in other computer-related crimes, perpetrators of online fraud are very difficult to find because the evidence of their crimes can be so easily erased. Therefore, the frauds that will arise in response to the new Act’s tradeoffs may make prosecutors’ jobs much more difficult in catching perpetrators of online check fraud.
CITE AS:
Lisa Wines, Note, Check Clearing for the 21st Century: Substitute Checks not Sufficient in Disputes Alleging Fraud, 13 SYRACUSE SCI. & TECH. L. REP. 95 (2006)
NOTE: Footnotes in this abstract were omitted.