What Is a Stop Payment?
A stop payment is an instruction you give to a bank or financial institution to cancel the payment of an "item," which may be in the form of a check, electronic payment or some other type of bank draft. You must be the holder, either individually or jointly, of the account from which the item was drawn. A stop payment order is only effective if you issue it before the bank processes the item. Banks frequently charge a fee for a stop payment order.
Why Issue a Stop Payment
You might issue a stop payment order if you change your mind after you've already started making payment. For example, you may fall into a dispute with a company that sells you a product or service and want to halt payment until you resolve the matter. Another reason to stop payment is if you misplace your checkbook and fear it has been stolen, or if you know that an unauthorized person has forged your signature on one of your checks. You might stop payment if you realize after issuing the item that the account has insufficient funds and want to avoid the bounced-payment fee, which is usually larger than the stop-payment fee.
Issuing a Stop Payment
Many banks will honor an oral communication to stop an item if they can satisfactorily confirm your identity. In joint accounts, either co-owner can stop a payment. A stop payment order is good for six months. However, if you stopped a payment orally, you have only 14 days to confirm the order in writing or else the stop payment will lapse and the item might be paid. You can extend the stop payment an additional six months by written request.
Acting Too Late
The bank will honor the payment if you fail to stop it soon enough. It's too late to stop payment once any of these events occurs: • Your bank accepts or certifies the item; • Your bank cashes the item; • Your bank clears the item without the right to revoke it; and • A certain amount of time has elapsed, usually after the first banking hour of the next banking day and no later than then end of the next banking day If the bank honors the item despite your valid request for a stop payment, it's up to you to establish that you made the request correctly and within the time limits. If you prove your case, the bank is responsible for any damages caused by failing to stop the payment, including the damages caused by the bank for dishonoring subsequent items.
Sometimes, a bank will stop payment without receiving an instruction from the customer to do so. Normally, this might occur if the item would cause an overdraft, but mistakes can occur. If the bank dishonors a proper payment, it is liable for damages caused by wrongfully dishonoring the item. The amount of the liability is limited to the cost of actual damages to the customer, including arrest, prosecution or other consequential damages. You must prove the facts of the case to collect damages.