Phony money orders cause increased 'holds' for all

Don't be stunned if you try to deposit a money order and find a hold has been placed on it, tying up your funds for days. Try to cash it on the spot and the bank might refuse if you're not a customer. If you are a customer, you may be asked to deposit it and wait for it to clear.

Blame it on the counterfeiters who increasingly are hitting banks with realistic-looking fake money orders.

Money orders used to be as good as gold, but that was before technology made it easy to forge financial instruments. A common scam today involves fake money orders from overseas being sent to unsuspecting Americans.

A Kentucky woman who advertised for a roommate received several fake money orders from a woman in England who said her company was relocating her to the U.S. and paying her expenses. The victim was told to take a month's rent and the security deposit from the money orders and return the rest.

The victim deposited the bogus money orders in her account at University of Kentucky Federal Credit Union. The credit union cashed them, but then made the victim reimburse the amount when it was determined the money orders were counterfeit. As you can imagine, the victim, who was out a considerable amount of money, was incensed that the credit union didn't catch the fakes.

"Unfortunately, when people get defrauded, they're out the cash and often the first one they vent their frustration on is the financial institution because they think the institution should have the experience to prevent this. While it's true sometimes, we can't stop everything," says Kevin Sisler, director of risk management at the credit union.

"It's a load on the customer, no doubt about it. We empathize with the individual. They're not only taken by the person who gave them the fake money orders, but they feel as though they've been taken by their financial institution as well. It's a no-win situation for everyone."

In this particular case, Sisler points out, even if the credit union had put the 11-day hold allowed under special circumstances, it wouldn't have helped because it took three weeks for the counterfeits to be returned.

Treated as checks
While money orders are often treated as cash, banks consider money orders the same as checks and, as such, they can place the same holds as federal regulations allow on local or nonlocal checks. Regulations call for U.S. Postal Service money orders to be treated as cash under certain circumstances, but a Federal Reserve spokeswoman says they, too, can be treated the same as checks for hold purposes when necessary.