What do you get when you divide one massive problem across three vast federal agencies? We’ll find out before too long as the Feds are ganging up on fraud, namely paper checks.
Spurred into action mode by an AI-powered fraud epidemic that seems unstoppable, three federal agencies issued a joint press release on June 16, announcing “a request for comment on potential actions to help consumers, businesses, and financial institutions mitigate the risk of payments fraud, with a particular focus on check fraud.”
Agencies named in the joint press release are The Federal Reserve Board, the FDIC, and The Office of the Comptroller of the Currency (OCC). Comments will be accepted for 90 days after publication of the notice in the Federal Register.
Why this, and why now? Brushing off a colossal digital transformation accelerated by the pandemic, paper check fraud remains a stubborn enemy of the financial sector. Roughly 40% of all payments are still made using paper checks, and shockingly, PYMNTS.com research found that 75% of companies were still using paper checks in 2024.
Bottomline Senior Risk and Fraud Officer Katie Elliott explains that checks continue to be a preferred method for fraudsters due to what she calls the "fraud triangle of cheap, easy, and fast,” noting that "checks offer advantages over electronic payments for fraudsters because they're relatively simple to manipulate, and provide immediate access to funds.”
Also, the banking system's handling of checks creates vulnerabilities that criminals can readily exploit. This reflects the practical challenges businesses face. Small and medium-sized businesses (SMBs) specifically may lack the resources to implement ePayables. The cost and complexity of setting up these systems can be too pricey for many SMBs.
But even those who make the digital shift can still suffer the ill effects of paper checks. Elliott points out, somewhat ironically, that government entities often require paper checks for certain transactions, creating a contradictory message as federal agencies call for public comment on how to take action…against check fraud.
"Many businesses still use checks because electronic payment methods can be complex and costly to implement," Elliott says. Federal agencies' timing in seeking public comment now likely stems from increasing fraud losses and a rise in lawsuits against financial institutions, she adds. As these losses become more visible and less excusable, regulatory bodies feel greater pressure to address the underlying issues.
Ending Paper Checks (by Executive Order)
The joint press release on mitigating payment fraud focuses heavily on check scams, suggesting several possible remedies. Elliott believes that enhancing consumer protection and updating regulations are crucial components of any effective solution.
Current regulations lack clarity regarding check disputes, she says, which complicates the process for both fraud victims and financial institutions.
"We need better enforcement to catch fraudsters," Elliott says. "More resources should be allocated to detection agencies to identify and prosecute those responsible." This kind of multi-faceted approach would address both prevention and enforcement, she says, creating a more muscular defense against modern payment fraud.
On an interesting note, a March 2025 White House Executive Order mandated the federal government to cease issuing paper checks by September 30, 2025. It also noted that “Treasury checks are 16 times more likely to be reported lost or stolen, returned undeliverable, or altered than an electronic funds transfer,” putting the EO in perspective.
Elliott cautions that the mandate alone won't significantly reduce fraud, as criminals will simply move to other channels. A coordinated effort is necessary, involving not just the cessation of check issuance, but also ending acceptance of checks as a payment method.
The Promise of Payment Networks
On a separate but related front, Elliott strongly supports the federal government's advocacy for digital payments. Recent advancements in ACH and virtual cards have made electronic payments more accessible and secure than ever before.
"Using a business payments network can facilitate the shift from checks to electronic payments," Elliott says. B2B payment networks are known to offer important benefits, including reduced regulatory burden and lower fraud risk for both payers and vendors.
Businesses from SMBs to enterprises are moving to B2B payment networks, such as Bottomline’s Paymode service, ditching checks to gain digital speed and precision.
As for the public comment period, it will likely result in enhanced consumer protection measures and updated regulations down the road. It may not take long in this case. Fraud is out of control. Here and now, clearer guidelines on check fraud disputes would benefit all involved, and help streamline the resolution process when fraud does occur, she says.
Additionally, financial institutions can play a crucial role by making it easier for businesses to adopt electronic payment methods. Real progress will require alignment across all sectors, with consistent policies that encourage electronic payments while providing adequate support during the transition.
As payments move forward into a fully digital future, the balance between security, convenience, and accessibility remains vital. Elliott notes that reducing reliance on paper checks is central to that effort, but true success depends on making electronic payment alternatives superior in ways that can benefit the entire ecosystem.