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. Don't let retirement
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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.

Banks 'can't stop everything'
"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.

A Minnesota case was another Nigerian scam. A local man advertised a car on the Internet and received a call from someone claiming to be in Nigeria who had a friend in Washington, D.C., looking for that type of car. The seller's asking price was too high, but then the Nigerian called back and said his friend wanted the car after all. When the victim said the vehicle had been sold, he was told a money order had already been sent to pay for the car. "Cash the money order and wire the money back to me," said the Nigerian.

OK, it may be hard for you to believe that people fall for these scams, but it happens all the time. Fortunately, the bank got wind of the scam before it was too late.

"We made him deposit (the money order) to his checking account and he took out a new money order to send to the guy," says Gary Williams, president of First Security Bank in Lake Benton, Minn.

"We didn't know it was bad at that point. He's a customer and when we received the fake money order back, we stopped payment on the one he took out to send to Africa."

One scam leads to another
For First Security Bank, the ordeal was just beginning.

"That money order that he bought from us and sent to Africa has been copied with our bank name and our employee's signature," Williams says. "We've received calls indicating that $155,000 in money orders have been issued off the one they copied. We've had calls from Florida to Massachusetts, Montana, Wyoming, South Carolina and North Carolina. But, I've only talked to one bank that has disbursed funds on that particular money order."

The problem isn't just happening to money orders issued by banks and convenience stores. The U.S. Postal Service is under attack, too. Postal inspector Paul Krenn says that in the 12 months ending September 2004, the Postal Service had 3,700 instances of counterfeit money orders out of 188 million that were issued.

"In January of this year we already hit that number (of fakes) just since Oct. 1, 2004," says Krenn.

"The Postal Service is in the process of redesigning the money order. It will have enhanced security features. But if people don't know what they are, it won't stop the problem. It says on the money order that there's a watermark, but many victims say they weren't aware of the security feature."

Several banks whose money orders have been counterfeited either refused to be interviewed for this article or didn't return phone calls. The U.S. Postal Service takes the opposite tack and goes to great lengths to show the news media and consumers what their money orders look like and how to identify security features.

Familiarity breeds wisdom
"The counterfeits, as good as they are, haven't compromised (our) security features," says Krenn. "But people who are accepting the money orders as payment aren't familiarizing themselves with the security features. We've found there are a number of people who will accept them without knowing what they're accepting. That's where the vulnerability is."

The redesigned U.S. Postal Service money order won't be available until sometime in 2006, but current money order security features are explained in detail on its Web site. Familiarizing yourself with the features is one of the best ways to avoid becoming a victim.

Probably the best way to avoid being victimized is to quit falling for Nigerian scams and all the other scams conjured up by creeps trying to take your money. But when it comes to accepting nonpostal money orders, perhaps the best advice is to not accept a money order unless you know the person who is giving it to you, or until you can verify its authenticity.

http://moneycentral.msn.com/content/Savinganddebt/consumeractionguide/P122096.asp

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