The Overpayment or Advance Payment Scam is the most common form of fraud encountered in on-line sales of goods but has also been the means of fraud in some sweetheart scam cases. It is based on a fundamental misconception about how cheque clearing works and the meaning of the phrase 'cleared funds'.
When a cheque is paid into a bank account it has to be fully verified before the funds can actually be credited to the account. Even in this day-and-age this means that the actual physical cheque has to be returned to the issuing bank for full authorisation for the funds to be credited. If any anomaly is discovered at this stage, the entire transaction is cancelled.
What this means in practice is that when you pay a cheque into your account your bank will do a preliminary enquiry about the issuing account and then (because of the pressure from the public to clear/credit funds more rapidly) will credit the funds to the recipient account within typically 6-8 days.
Many people, in fact most of the general public, will then regard these funds as having 'cleared' and even banks refer to the credit in this way. The problem is that until the physical cheque is returned to the issuing bank and is then checked the entire transaction is in question.
If the issuing bank finds the cheque to be fraudulent in any way (forged or stolen cheque, false signature , altered amount etc.) the credit does not take place, the recipient bank is informed and the initial credit to your account is reversed (the seemingly cleared funds vanish). This process can take weeks.
This means that there is a window of opportunity for fraud from the moment that the funds appear to clear and the transaction reversal weeks later because you think you have money in your account that is not actually there!
(Beware - One UK bank is now claiming in advertisements that "your money will start to gain interest from the day you pay your cheque in ". Please note that even MORE care should be exercised here! This statement does NOT mean that the cheque is cleared or will clear more quickly! The clearing and authorisation processes are still exactly the same and take the same time. It just gives a longer period during which you are susceptible to the fraud.)
The Overpayment or Advance Payment Scam uses this misconception of 'cleared funds' for fraudulent purposes by requesting repayment of these 'ghost' funds during the period of susceptibility. There are many variants in how the fraud is presented but a typical form on classified sales sites follows this format:
An email response will be received by an advertiser offering to purchase the goods immediately at the asking price. It will ask the advertiser to confirm the 'the final price' and ask for account details so that they can arrange payment. (Beware of this request – it is in order to 'farm' your account details – not to empty your account but to be used for future stings – see later in this section)
Either in this email or a subsequent email there will be a query about whether you will accept a cheque/money order/bankers draft (which does not fit with their request for account details!) If the advertiser accepts this, an agreement is made to send the payment.
In due course the cheque/money order/bankers draft arrives. It is for MORE than the asking price (this may have been pre-warned or may be explained later.) This overpayment is explained in many ways:
Full amount includes commission
Includes a sum for shipment
Multiple goods being purchased with same cheque
In many cases the person who was previously the buyer says that they are buying the goods on behalf of a relative, friend or business associate to explain the fact that the cheque is not in their name and also the reason for the overpayment. They then explain the extra transaction required when the funds have 'cleared'.
The seller then deposits the cheque in their account and waits for it to 'clear'. A few days later they can see the funds apparently in their account. The buyer requests that the Overpayment be transferred back (if an 'error'), paid to the shipping company, paid to a third party for other goods etc.
This payment is requested by Western Union.
If the seller is completely taken in, they will then send these funds completely untraceably to the unknown recipient.
Days or weeks later they will notice that the initial credit for the cheque amount has vanished from their account and they are out-of-pocket to the value of the Overpayment.
(One nasty variant of this is that if the fraudster receives the Overpayment and still has time, they may go for the whole amount. They will invent a reason to cancel the purchase – a simple change of heart, serious family crisis, critical illness of purchaser, change in import regulations etc – and will request the return of the rest of the purchase amount. If pushed they may concede a small penalty for time-wasting. Again the funds have to be returned immediately by Western Union)
In either case what has happened is that during the 'window' the seller has been persuaded to send money they thought was in their account to an untraceable recipient: the payment instrument (cheque, money order, bankers draft) has been found to be fraudulent and the initial transaction cancelled and the apparent credit to the sellers account has been reversed.
Not only has the seller lost the transferred funds but they could also face a charge from their bank!
There are MANY variants in how this scam is presented but some features are constant:
The 'purchaser' agrees to the purchase without any of the checks or questions that would seem normal.
There is no quibbling about price.
Payment is arranged by cheque, money order or bankers draft.
The cheque is for more than the selling price (Note that some cleverer scammers send the correct amount but then rely on the 'cancelled sale' actions above to explain the funds return.)
Return of funds is requested shortly after cheque 'clearance' by Western Union or Moneygram. (Untraceable methods)
The attached email is an example which was recived by a classified advertiser just recently.
The Overpayment scam depends on high-quality forged cheques. A recent report claimed that in ONE DAY of interception in 2005 at Heathrow Airport, courier packages from Nigeria were found to contain over £20 million in forged cheques. A Customs and Excise check on only 220 packages from Nigeria in 2004 disclosed false cheques for over £46.1 million. ONE handbag intercepted at a parcel centre in Coventry contained over £1 million in forged cheques. Sellers have reported that scam responses can easily exceed the number of real responses to advertisements on some sites. It is VERY widespread and all sellers should beware.
Look for the warning signs – see the Spotting Scam Emails section.
Look for the strange buying signals above – does the buyer seem to be acting 'normally' and knowledgeably about what they are 'buying' or asking the right questions?
Was there any price haggling or did they give up too easily? They could still be genuine but start to ask 'why'?
DON'T GIVE YOUR ACCOUNT DETAILS. If they want to pay by cheque, why would they need these? The reason is not to 'empty the account' as some people think. This would be very difficult. What they want the details for is to have genuine account numbers which can be used for the next set of forged cheques!
Resist pressure to return ANY funds until the bank has absolutely assured you that the money is there. You can explain to your Bank Manager what you suspect and they will advise the process. In many cases they can take special steps to do more than the normal brief checks and initiate a direct query to the issuing bank by faxing a copy.
Tell the 'purchaser' that they will just have to wait until you are satisfied – Don't be bullied! They will often become aggressive at this stage if they think they are going to lose the "window'.
How did the cheque arrive? High price item payments frequently use FedEx to transmit the cheque. When the waybill is examined the first recorded waypoint is the FedEx office in Poyle UK (nearest office to Heathrow) making it look as if the cheque originated in the UK. FedEx have looked into this and report that packages presented to the Lagos Nigeria FedEx office are handled by hand and the first time they are registered on the electronic tracking system is when they arrive in the Poyle UK office. Does this correspond with any of the locations the 'purchaser' has mentioned. If not, ask them why not. If you receive a FedEx delivery with Poyle, Heathrow as the first waypoint be aware that this does NOT mean that the package originated in the UK!
Is it the 'purchasers' own account? If not ask why not and their relationship to the account.
Don't be taken in by references to Bankers Drafts being intrinsically secure. They are just as valueless as a dud cheque if they are forged! (The upside of a Bankers Draft though is that you or your Bank can check these cheques faster than 'normal' cheques by calling the issuing bank to see if the cheque number/amount is verified.)
Check 'purchasers' credentials as much as possible. Did they give you an 070 telephone number? (Click for details.) Try to insist on a verifiable, preferably UK landline number.
If after all of the above you think that the funds should be returned (e.g. Genuine cancellation of purchase.) INSIST on a safe, verifiable method such as formal Telegraphic Transfer to a validified Bank Account.
Above all BE CAUTIOUS and PRUDENT.
A straightforward account of one of these scams involving the sale of a Ford Mustang comes from the Washington Post. Although this scam takes place in America, the mechanism and reaction of bank staff to the query "has it cleared? " equally apply in the UK. Beware. Bank Staff themselves may not be aware of the potential for a cheques to fail after being 'cleared'.
Although it is NOT recommended, there are a number of websites and individuals dedicated to 'scamming the scammers.' An example from one of the less extreme individuals which also illustrates perfectly the way a scammer works is at http://www.saabnet.com/tsn/class/scam/
This person collects scammers cheques for fun (and to cost them money!)
Other sites have reported cases where 'victims' have managed to get the scammer to send them money (£50 in cash) as a payment to their bank to release the funds prior to formal verification of the cheque (!)
These are fun to look at but it is not recommended to take action yourself.
Video of a scammers 'bust' in Nigeria. Note how the 'general public' dislike the police action. It is a community thing there.
In November 2006 the Office of Fair Trading made an announcement overhauling the cheque clearing process (by November 2007). New cheque clearing standards were to be introduced by all UK banks and the recommendations were to become part of the Banking Code. The main proposals were:
" money deposited into any account will start to earn interest (in interest-bearing accounts) or will count against overdrafts no later than two working days after the cheque is deposited (for example, Wednesday for a cheque paid in on Monday)
all consumers and businesses will be able to withdraw funds deposited by cheque into current and basic bank accounts no later than four working days after the cheque is deposited (for example, Friday for a cheque paid in on Monday). For instant access savings accounts and those savings accounts from which withdrawals are allowed subject to a penalty, withdrawal will be available no later than the sixth working day after the cheque is deposited (for example, Tuesday of the following week for a cheque paid in on Monday), and
financial institutions will not be able to take money deposited by cheque back out of an account later than six working days after deposit ('guaranteed fate'), unless the payee is a knowing party to fraud. Currently, there is no maximum time limit for fate in the UK. This agreement puts the UK in a world-leading position. "
In other words it is now the Bank's responsibility after 6 days. Better - but remember - not until November 2007 and there are still getout clauses. That "unless the payee us a knowing party to fraud " could give lawyers a(nother) field day!