What is Kiting?

If you lack sufficient funds to pay your bills, you might feel tempted to turn to unethical practices, such as writing bad checks. Kiting is one illegal practice that involves the account holder depositing a bad check from one bank account into another and taking advantage of that money before the bank notices the issue. Since this form of unauthorized credit constitutes fraud, you’ll want to understand how kiting works so you can avoid it and consider legal ways to get the needed money instead.

Check kiting involves at least two bank accounts that may be at the same financial institution or different banks. The Cornell Law School Legal Information Institute explains the main idea is to write a bad check from one account to provide funds in another account that you can use. Although the fraudulent check eventually gets returned if you don’t cover the funds quickly enough, it temporarily boosts your bank account balance so you can make withdrawals or earn interest on money you don’t actually have.

Kiting is possible due to the float period between when you deposit a check and when it clears the banking system. The Electronic Code of Federal Regulations explains that Regulation CC typically requires banks to make deposited check funds available the next business day, but the actual clearing process can take ​three business days​. The kiter may try to hurry and cover the fraudulent check before the banks find out, or they may just steal the bank’s money.

Note that check kiting differs from simply writing a too large check that overdrafts your bank account. Instead, this practice involves intentionally scheming to defraud financial institutions and get unauthorized credit.

Individuals and businesses can participate in elaborate check-kiting schemes that take different forms. However, it helps to look at a typical scenario.

Say that you have a checking account with $0 at bank A and another account with $100 at bank B. You need to withdraw $1,000 to pay your rent, and the problem is neither the first bank account or second bank account has that amount. So, you decide to write yourself a $1,000 check from bank B – even though that account will be $900 short – and you deposit that bad check at bank A.

Although the check can take a few days to clear, your bank A account updates the next day with the $1,000 deposited. You quickly make a withdrawal of $1,000 before it’s discovered that your bank B account lacks sufficient funds for the check. If you’re fast enough, you might deposit $900 in your bank B account before processing completes so that the check doesn’t get returned.

SQN Banking Systems explains that financial institutions take various steps to identify check kiting and reduce the chances of this fraud succeeding. However, if you do engage in it, you can face several repercussions, such as paying overdraft charges and insufficient funds fees or having your bank account restricted or closed. The law firm Greg Hill and Associates explains that bank fraud penalties, such as criminal fines, community service and imprisonment, are possible as well.

You’ll want to avoid this form of check fraud in any circumstance. Instead, consider legal forms of borrowing money such as using a credit card, requesting a personal loan or asking friends and family. The Consumer Financial Protection Bureau suggests contacting bill collectors to try to work out a payment plan or pause. If you lack money for important living expenses, you might qualify for charity or government programs that can help you out.