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Valid Reasons for Stop Payment

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We have customers who are wanting to put stop payments on ACH withdrawals that pay back their pay day loan. The reason they give is "too early", "different amount" or "multiple withdrawals". Are these valid reasons to do a stop payment? Where could I find information addressing valid reasons for stop payments?

Since the question involves stop payments of an electronic funds transfer, the answer is located in Section 1005.10(c).

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 a caveat, if the transaction involves a paper check instead of an ACH debit, the stop payment is governed by your state's version of the Uniform Commercial Code 4-403.

(a) A customer or any person authorized to draw on the account if there is more than one person may stop payment of any item drawn on the customer's account or close the account by an order to the bank describing the item or account with reasonable certainty received at a time and in a manner that affords the bank a reasonable opportunity to act on it before any action by the bank with respect to the item described in Section 4-303. If the signature of more than one person is required to draw on an account, any of these persons may stop payment or close the account.

Regardless of whether an electronic item under Reg E, or a paper check under the UCC, the customer has the right to request a stop payment for any reason. Whether the bank believes the reason is valid is irrelevant. It is obligated to honor the customer's request.

First published on 10/22/12

First published on 10/22/2012

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