Check kiting

Check kiting is a form of check fraud, involving taking advantage of the float to make use of non-existent funds in a checking or other bank account. In this way, instead of being used as a negotiable instrument, checks are misused as a form of unauthorized credit.

Kiting is commonly defined as intentionally writing a check for a value greater than the account balance from an account in one bank, then writing a check from another account in another bank, also with non-sufficient funds, with the second check serving to cover the non-existent funds from the first account. The purpose of check kiting is to falsely inflate the balance of a checking account in order to allow written checks to clear that would otherwise bounce. If the account is not planned to be replenished, then the fraud is colloquially known as paper hanging. If writing a check with insufficient funds is done with the expectation they will be covered by payday – in effect a payday loan – it is called playing the float.

Some forms of check fraud involve the use of a second bank or a third party, often a place of retail, in order to delay the absence of funds in a transactional account on the day the check is due to clear at the bank. Such acts are frequently committed by bankrupt or temporarily unemployed individuals or small businesses seeking emergency loans, by start-up businesses or other struggling businesses seeking interest-free financing while intending to make good on their balances, or by pathological gamblers who have the expectation of depositing funds upon winning. It has also been used by those who have some genuine funds in interest-bearing accounts, but who artificially inflate their balances in order to increase the interest paid by their banks. In recent years, criminals have started taking advantage of the check float to pass fraud checks through solicited users of online auctions.

Circular kiting describes forms of kiting in which one or more additional banks serve as the location of float, and involve the use of multiple accounts at different banks. In its simplest form, the kiter, who has two or more accounts of his own at different banks, writes a check on day one to himself from Bank A to Bank B (this check is referred to as the kite), so funds become available that day at Bank B sufficient for all checks due to clear. On the following business day, the kiter writes a check on his Bank B account to himself and deposits it into his account at Bank A to provide artificial funds allowing the check he wrote a day earlier to clear. This cycle repeats until the offender is caught, or until the offender deposits genuine funds, thereby eliminating the need to kite, and usually going unnoticed.

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Wikipedia