I can't find anywhere in the UCC that a bank is REQUIRED to accept oral/verbal stop payments. The problem is getting the customer in to sign once the payment has already been stopped. Any advice?

Section 4-403 provides a right to stop payment, and it allows for oral stop orders by providing the bank with a cancellation right if an oral stop is not confirmed in writing. If you refuse to take an oral stop and your customer suffers a loss attributable to the refusal, you MAY (not will, but may) be liable for the customer's losses. Getting the customer to sign the stop order is a matter of enforcing the rule allowing you to void the stop order if it's not confirmed in writing in 14 days. Play hard ball, and your customer cannot legally complain.

I had a different question going the other way....for high value customers, we would like to rely upon the verbal stop payment for up to 60 days, with no written confirmation. We understand the added risk and this would only be for certain HVC's. The UCC permits deviation of its terms by agreement so I think this would be okay...thoughts?

Sounds like a potential UDAAP to me by limiting expanded consumer rights to certain customers.

Thanks John

So, if we take an oral stop payment, are we obligated to process immediately, or do we wait for the customer to sign the stop payment form? I understand that if they don't sign within 14 days that we can cancel the stop. If we process the stop before the signature, the the customer tries to say they didn't stop it, what's our proof?

Danieyl,

UCC Sec. 4-403 provides for oral stop payments and that these will lapse in 14 days if not confirmed in writing. The statute does not cover the situation where a customer denies having requested a stop pay made orally because it is presumed that the bank will confirm that it comes from the account owner or authorized signer before it is put in place. Several banks I know have modified their stop payment provisions to remove the requirement of confirmation in writing and simply place it on the system for 6 months. Other banks have modified stop payment provisions to make the stop pay permanent. As indicated by John and Randy, you must accept the oral stop payment, and I am sure your account disclosures indicate how long the stop pay order is effective.

Now whether you process the oral stop payment immediately is another matter. The Oklahoma Code Comment:

1. The right to stop payment is subject to four limitations: (1) It can be exercised only by the "customer" or other person authorized to draw on the account and, as to the stop payment order itself, it must (2) identify the item with reasonable certainty, and (3) be received "at such time" and (4) "in such manner" as to be effectuated before final payment. "Customer" is defined in subsection 4-104(a)(5). Any one of multiple account holders may stop payment or close the account, even if more than one signature is required to draw on the account. But see UCC § 4-405.

Sec. 4-303 permits the bank to establish and disclose a cut off time:

a) Any knowledge, notice, or stop-payment order received by, legal process served upon, or setoff exercised by a payor bank comes too late to terminate, suspend, or modify the bank's right or duty to pay an item or to charge its customer's account for the item if the knowledge, notice, stop-payment order, or legal process is received or served and a reasonable time for the bank to act thereon expires or the setoff is exercised after the earliest of the following:

(1) The bank accepts or certifies the item;

(2) The bank pays the item in cash;

(3) The bank settles for the item without having a right to revoke the settlement under statute, clearing-house rule, or agreement;

(4) The bank becomes accountable for the amount of the item under Section 12A-4-302 of this title dealing with the payor bank's responsibility for late return of items; or

(5) With respect to checks, a cutoff hour no earlier than one (1) hour after the opening of the next banking day after the banking day on which the bank received the check and no later than the close of that next banking day or, if no cutoff hour is fixed, the close of the next banking day after the banking day on which the bank received the check.

(b) Subject to subsection (a) of this section, items may be accepted, paid, certified, or charged to the indicated account of its customer in any order.

If no cut off hour is established, then case law indicates it must be placed within a reasonable time period. Depending on the resources and procedures of the bank, that could be anywhere from 5 minutes to a couple of hours.

rlcarey,

Old comment, but I am hoping you can expand. For instance, let say's all of a bank's stop payments on checks, ACH, recurring debits to consumer accounts, etc. are handled according to UCC, NACHA, and Reg. E requirements currently. Said bank is considering a change to the stop payment period for checks from 6 months after written notice to a newly instated indefinite or "evergreen" stop - the caveat: this would only be applied to a subset of bank owned DDA accounts through which the bank's Corporate Trust accounts make payments of bond interest and stock dividends. The main motivation being to manage stale dated checks, with which the bank has had multiple issues after the 6 month period.

From a technical standpoint, I don't see any issues with this from a UCC standpoint. However, you note above that similar practices could be considered unfair or deceptive. I am wondering if you could expand on how you assess this practice against UDAAP guidance. Which prong you are most concerned about? For instance, would you argue that this causes substantial consumer harm that could not be reasonably avoided by the customer?

Your thoughts are much appreciated.

this would only be applied to a subset of bank owned DDA accounts

This is internal management of your own accounts - it has nothing to do with consumers.