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Stopping an ACH Insurance Debit

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A customer has a monthly insurance premium set up to automatically be debited from his or her checking account. The customer comes into the bank and wishes to place a stop payment on the ACH draft. If we load a stop payment order to their account, what should our expiration date be? Our normal expiration date on a check is 6 months. Our deposit operations department seems to think we can only guarantee a stop payment on a draft for 1 month. Is this correct and what regulation answers this question?

There are two sets of rules that affect the recurring ACH debit. The first one is a NACHA rule. A stop payment only applies to an individual transfer. The stop order is valid for a period of six months, until the payment in question is stopped or the customer lifts the stop order, whichever occurs first. NACHA also has the 14-day unless confirmed in writing rule. For details, refer to NACHA Rules, sections 8.4 and 8.5. In the case of a recurring payment, only the specified payment is stopped and the Originator can still submit any other transfers in the series.

Assuming that your account is a consumer account, Reg E also has some things to say about stop payments. It only deals in stop payments on recurring debits. It, too, provides for 14-day oral orders to be confirmed in writing (if the bank requires it). There is no expiration term listed in the Reg. In fact, the Comments to section 204.10(c) indicate that the stop order (with regard to the stopped payment) is effective until lifted by the consumer. [See Reg. E, section 205.10(c)) or the Comments on this provision (Supplement I to Regulation E, Comments at 10(c))].

Reg. E then expands on the stop payment right in Comment 2 to section 205.10(c) in cases in which the consumer indicates that the authorization for pre-authorized debits has been revoked or withdrawn. The institution can ask the consumer to document the revocation by supplying a copy of the revocation within 14 calendar days (but must block all payments during that 14 day period). If the consumer supplies the requested copy, the bank has to block all future debits from the Originator until the consumer lifts the order or reinstates the authorization. If the consumer, after being told of the requirement for written confirmation, fails to provide it within 14 days, the bank can honor subsequent debits, presumably until the confirmation is provided. When it comes to Regulation E, it always prevails when it is more protective of the consumer. Because there is no "sunset" on stop orders in Regulation E, NACHA's rules on stop expiration are "trumped" by Regulation E, as regards consumer accounts.

First published on 7/23/07

First published on 07/23/2007

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