What is a Stop Payment
A stop payment is a request made to a financial institution to cancel a check or payment that has not yet been processed. A stop payment order is issued by the account holder and can only be enacted if the check or payment has not already been processed by the recipient.
BREAKING DOWN Stop Payment
Issuing a stop payment order often costs the bank account holder a fee (generally ~$30 although bank policies differ), which is levied by the institution. There are several reasons that a stop payment order may be requested. For example, the account holder may have sent a check for the wrong amount, or may have canceled a purchase after having put the check in the mail. Occasionally, if the stop payment is not requested in time and/or incorrectly, the financial institution will not be able to halt the process.
To request a stop payment, an account holder generally provides specific information about a check in progress to the bank – e.g. “check # 607 for $250 written to John’s Cleaning Agency.” In an ideal scenario the bank would then flag the check and prevent it from clearing. If a bank is unable to locate the check in question, it will often continue to look for the check for six months – although policies differ among banks. If the check is never found, the request for stop payment usually expires, and the check could potentially be paid. Some banks offer the opportunity to extend or refresh the stop payment, via a verbal or written request.
Stop Payments and Check Security
In addition to issuing individual stop payments if an account holder is concerned over error or fraud; additional measures for securing checks and personal finance information more generally are becoming mainstream. One method, which has been updated over time is the addition of a padlock feature on personal checks. The Washington-D.C.-based Check Payment Systems Association (formerly Financial Stationers Association) created the padlock feature as check fraud grew pre-2000. The padlock feature completed a triumvirate of features, incorporated into a check, to add complexity and make it more challenging for fraudsters to reproduce it.
Online banking – which is now used by all major banks like Bank of America, TD Bank, Citibank, Chase Bank – is designed to improve the efficiency of depositing, transferring, and withdrawing funds, along with balance-checking and other, relatively simple personal finance tasks. With individual financial information now stored online – the potential for secure encryption is high – along with the ability of cyber-criminals to steal data. Despite such threats, many have chosen to bank fully online. In this way, issuing stop payments, among other tasks, becomes more efficient.