The term check kiting refers to abusing the lag time for processing check payments in order to hide a negative account balance, or to inflate a positive balance. This is typically accomplished by continually cross-depositing checks between two accounts at different banks or credit unions – essentially covering one bad check with another bad check, over and over again, so the balance never drops below zero. For example:
- You have an account at Bank X with a balance of $10, and an account at Bank Y with a balance of $10.
- You write a check to yourself for $1,000 from each account, and deposit them both into the opposite account.
- Both accounts are temporarily credited with a balance of $1,010 during the time it takes Bank X and Bank Y to actually transfer the funds between each other.
- You spend $500 from the account at Bank X.
- You continue writing and cross-depositing checks to keep the balance positive.
In the above example, you’ve “created” $2,000 in money that doesn’t really exist, except as temporary account credit while the banks process the checks and exchange the funds. This delay between when a check is deposited and when the money is actually moved is called float time, or simply float.
All check kiting uses float, but not all float is check kiting
Taking advantage of check float is not always illegal – in fact, it used to be a fairly common practice. The distinction between whether it’s a crime or not is a matter of intent. If you write a check for more money than you have in the account, but you legitimately intend to cover the difference before the check clears, then it would be a legal, albeit risky, use of float.
An example of this might be writing a check on Thursday, knowing that payday was on Friday and the check wouldn’t clear until Monday. If there was a problem and your pay didn’t come through in time, that would simply result in a bounced check – and while you might face penalties from your bank, it’s generally not a crime if it was done by accident, rather than with intent to defraud. On the other hand, if you covered the amount with a bad check from a different account until your pay came through, that would be check kiting, a serious crime.
Electronic check clearing has made check kiting more difficult
The industry’s switch in the early 2000s to electronic clearing, rather than exchanging original paper copies of checks, cut processing times down dramatically, often to a single day, or sometimes even the same day if both accounts are at the same bank (also called “on-us checks”).
That’s made check kiting a much more difficult, and risky, proposition – as computerized algorithms and AI have also gotten better at detecting unusual account activity patterns. As a result, it’s encountered less commonly now than in the past. Funds availability rules that limit the amount of money that’s credited to an account immediately also make large-scale check kiting fraud impractical.
Isolated instances of check kiting still do crop up. The viral “Chase free money glitch” of 2024, where TikTokers wrote checks to themselves and immediately withdrew the money from the ATM, was a form of check kiting, except that the perpetrators didn’t use multiple accounts. As it turned out, they were simply exploiting a lax funds availability policy by the bank that was allowing credit for the full amount of the check immediately. Needless to say, the fraud was easy to detect, and the funds availability loophole has since been changed!
