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Reg E - Stop Pays on Preauthorized Transfers

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Can you provide an interpretation of Reg E Section 205.10? It states, "the financial institution must honor an oral stop-payment order made at least three business days before a scheduled debit. If the debit item is resubmitted, the institution must continue to honor the stop-payment order". It further states under revocation of authorization "once the financial institution has been notified that the consumer's authorization is no longer valid, it must block all future payments for the particular debit transmitted by the designated payee-originator." Is the bank covered if their policy is to place a stop payment for a specific time frame? Is the bank required to block all similar transactions (same originator not necessarily the same amount) indefinitely?

Unlike the ACH rule or the UCC rule covering paper checks, stop payments covered by Regulation E don't expire, but a stop payment order only applies to a single payment -- the May $50.00 payment for health club membership, for example -- but it applies to that payment no matter how many times the Originator might try to collection that individual payment. By itself, a stop payment does not apply to other pre-authorized debits subject to the underlying authorization, so the stop on the May payment does not affect the June payment, even if it's for the same amount.

However, if the customer informs you that he or she is canceling the underlying authorization: "I've resigned my membership and told them not to charge my account any more", then you have to somehow block all future debits from that Originator that are part of the series that was originally authorized. That's easy if all you get is one consistent series from that originator, a monthly $50 debit, but not so easy if there are multiple series of debits: "I'm canceling my membership but my wife is dedicated, and is keeping hers, so her membership fees will continue to be charged to our joint account".

You can require your customer to provide you documentation of the cancellation; for example, a copy of the written revocation of authorization, within fourteen days, and if the customer doesn't supply it, you can lift your block until you receive it.

First published on 6/16/08

First published on 06/16/2008

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