Stop Payment Request: To Ask or Not to Ask
by Mary Beth Guard, BOL Guru
Question: We have a revised stop payment request order for checks and ACH entries. Are we supposed to
ask why the customer is putting on the stop payment? We were under the assumption that we are not even supposed to ask this, but there is a section on the form for this. Also, can we choose to put the stop payment on for six months without a signature?
Answer: On the stop payments relating to checks, to quote another banking attorney, "No good thing ever
came from asking the reason for a stop payment." The UCC says anyone authorized to draw on the account can stop payment on any item. Period. As long as the customer makes the request within the proper time frame and describes the check with reasonable certainty,
you are under an obligation to stop the payment. See Section 4-403. There is no legal requirement that the stop order be made for a good reason or any particular type of reason.
When it comes to the ACH entry, it's governed by Reg E and the NACHA rules. For convenience, some forms will combine an ACH Stop Payment with an Authorization Revocation where a reason for return can be designated, such as:
Transaction never authorized
Stop payment (one-time stop pay)
Authorized revoked or cancelled (allows either a stop of a specific item, or stop all payments to a
particular company)
Reg E simply addresses stop payments on preauthorized transfers. In that regard, it certainly doesn't require a reason for a stop payment. Section 205.10(c) provides as follows:
Consumer's right to stop payment - (1) Notice. A consumer may stop payment of a preauthorized electronic fund transfer from the consumer's account by notifying the financial institution orally or in writing at least three business days before the scheduled date of the transfer.
As far as your question about whether a stop payment on a check can be good for six months without a signature, the answer is perhaps. Section 4-403 says, in subpart (b):
A stop-payment order is effective for six months, but it lapses after 14 calendar days if the original order was oral and was not confirmed in writing within that period. A stop-payment order may be renewed for additional six-month periods by a writing given to the bank within a period during which the stop-payment order is effective.
The provisions of Articles 3 and 4 of the UCC can be varied by agreement of the parties, with certain limitations not relevant here. That means you can contractually change them. Your customer is the party who could raise objection (i.e., sue you) if you dishonored
a check due to an expired stop payment order. To avoid such a suit, you could amend your deposit account agreement so that your customer
specifically agrees that an oral stop payment order will remain in place for a period of six months. If the customer agrees to such a provision, he cannot raise an objection when you follow it. As with any UCC matter, check your state's version of the UCC, since it could differ from the language quoted above.
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