What is a Stop Payment?
A stop payment is an order by a customer of a financial institution or money order issuer to cancel a check or payment drawn on the customer’s account and return it to the depositor unpaid. A stop payment order can only be implemented by a financial institution if the check or payment has yet to be processed by the recipient.
Generally, stop payments are used in cases when the account holder does not want the check to be paid for various reasons. Some of the reasons include stolen or lost checks, forged checks, insufficient funds to cover the check amount, or a dispute between the depositor and the party that was given the check.
Financial institutions charge a fee for processing stop payments, and the amount is equivalent to the fee charged for a bounced check. When issuing a stop payment order to a bank, an account holder can call the financial institution to ask for a stop payment to be issued immediately, with a promise to visit the bank and issue a written order. If the account holder delays in issuing a stop payment order, the check or payment may be processed before the financial institution cancels the payment.
- A stop payment is an order by an account holder of a financial institution to cancel a payment before it is processed.
- A stop payment can only be executed if the check or payment has not been processed by the receiving bank/recipient.
- The financial institution charges a fee for processing the stop payment request.
How Stop Payment Works
When issuing a stop payment request to a financial institution, the account holder is expected to provide the bank with information about the check, such as the check number, payee, amount, and the date when the check was drawn.
For example, a stop payment request can be “stop payment on check number 555 for $1,000 written to John & John Clearing & Forwarding on November 1, 2020.” If the check has not been processed by the receiving bank, the bank will flag it to prevent it from clearing.
Although an account holder can issue a stop payment request by calling the bank, most banks require customers to follow up on the request with a written confirmation or by filling out the stop payment application form. However, canceling a check does not relieve the account holder of the debt obligation they owe to the payee who was given the check.
When the bank executes a stop payment request, it prevents the check from clearing when the check recipient attempts to cash it at the receiving bank. However, unlike a bounced check, a stop payment is not permanent, and the request could remain in place for at up to six months, depending on the financial institution.
If the check is not traced or returned to the depositor within that period, the recipient will still be able to cash the check. Some banks may allow account holders to extend the period when the stop payment remains active through a verbal or written order. Extending the stop payment may attract additional fees.
Costs of Stop Payments
Banks charge a fee for executing stop payment requests. The stop payment is charged to the person stopping the payment, and it is associated with the additional workload of flagging and stopping a check payment.
Account holders can expect to pay a stop payment fee of $30 with most banks, but it is important to check with your bank to see how much it charges to process a stop payment. Some banks may waive or reduce the stop payment fee for certain checking accounts or charge less if you make a stop payment request online or through a phone call.
Stop Payments on Cashier’s Checks
An account holder cannot request stop payments on cashier’s checks because the money leaves the account holder when the check is issued, not when it is cashed. Since cashier’s checks are a prepaid form of payment, they guarantee the recipient that the funds will be paid, which makes it extremely difficult to recall an already issued cashier’s check.
However, if the cashier’s check is lost or stolen, the account holder can request a cancellation of the check. Cancellation can take up to 90 days or more before a refund is made. When requesting a cancellation, the customer will be required to file a declaration of loss with the bank.
A cancellation represents a permanent refund of the amount drawn from the account, rather than a temporary hold, as is the case with regular checks.
Stop Payments on Electronic Payments
Stop payments on electronic payments can be requested if made for the wrong account, wrong amount, duplicate transaction, etc. Stopping electronic payments works the same way as stopping payments on a check, and an account holder can request a stop payment by calling the bank.
Banks require customers to give verbal instructions at least three days before the payment is charged and follow up with a written confirmation within 14 days. However, for pre authorized transactions, it is best to stop payment at the source by asking the billing company to delay the payments or stop the payments in their entirety.
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