$2,500.00 USD was taken out of the checking account of a New Jersey woman who placed a “stop payment” on a check to a company that did not complete a work order on her house.
The company submitted the check three times over three months for payment and three times the check was returned un-cashed to the company.


Exactly six months and a day after the check was written, the company
tried again to cash the check and the bank handed over the $2,500.00.
The woman’s bank account immediately redlined. She bounced a month’s
worth of checks.

Her credit score was ruined.
What happened to that woman could easily happen to you.
When I was growing up in Nebraska and you put a “stop payment” on a
check that meant that check was forever dead. Today, however, that is
not always the case. Did you know each state creates its own banking
laws even though they are federally insured by the FDIC? In New Jersey
a “stop payment” request on a check is only good for six months.

After
six months you must re-initiate the stop payment or that check becomes
alive again as the company in my example knew and exploited. Not only
do stop payment requirements vary from state to state but the policy
for how long a check is “live” varies from bank to bank within each
state. In the case of the New Jersey woman, her bank will cash a check
up to a year after it was written so if you want to guarantee a check
is killed at her bank you must do a stop payment every six months at a
cost of $20.00 USD for each stop request.

Other banks will only process
checks that are less than six months old from the date on the check
while some banks will still kill a check forever with a single stop
request.
Banks hate check stops because they are then obligated to pay to
process that check as a stop throughout all the banking databases and,
unlike a check that is actually cashed, a stopped check must always be
watched and kept alive in the system so it will not be cashed. Many
banks will not tell you a stop payment will expire unless you ask.

As
well, many banks will not tell you how long a check is considered
“live” after being written unless you ask. Keep asking. Banking laws
and rules and regulations are always changing. Never assume you know
anything until you ask and ask again. If you are ever unlucky enough
that you have to place a stop payment, make sure you know when and how
to renew a stop and always watch your bank account online every day
because there are times when a stopped check gets through the system
anyway and destroys your bank balance.

The sooner you see something
wrong with your account, the faster you can invoke your right to remedy
and preserve your good name and credit score. What is your bank’s
policy on stopping checks? How long is a check alive in your bank’s
system? Have you ever placed a stop on a check to only have it cashed
anyway? If you are an international reader, are you able to stop
payments on checks? How long are your checks alive after being written?

18 Comments

  1. Hell to the yeah! This happened to me too. My landlord cashed a check I gave him a year later after I told my bank to stop payment because I moved. I never got the money back either.

  2. Hiya Meckler!
    Welcome to this blog and I thank you for your passionate post!
    I’m sorry to hear you share the same situation as the woman in New Jersey. She was lucky that the bank gave her back the money — but only because she made a media fuss out of the situation and so many people were shocked to learn a “stop payment” doesn’t last forever.

  3. Hell to the yeah! I tried to get my money back too but the bank wouldn’t do it. I moved to a new state so they probably thought I wouldn’t cross state lines to fight it and they were right because I didn’t.

  4. Aw, gee, Meckler! You should have made an issue out of the situation just to see if you could get the right thing done. There are few people around who think a stopped check should be paid a year later. Sometimes doing the right thing is to go against the rules and standard practices.

  5. Another problem is that most checks aren’t processed by humans anymore. See “Check 21” standards at http://www.rdmcorp.com/Check21.shtml. “Check 21 allows the financial institution to make a unilateral decision to truncate all paper check(s) without agreements of any other party.”
    A “substitute check” can be created as part of the process:
    Per RDM Corp’s website:
    “Although Check 21 authorizes truncation, an institution is not required to accept electronic records of checks, instead Check 21 provides for the creation of a new legal instrument called a substitute check. Under the proposal, a substitute check will have the same warrantees and guarantees associated with paper checks even when presented electronically. All banks must accept the substitute check as they would the original document.”
    I wonder if somewhere along the line, the lack of human processing and the use of truncated electronic coding to process the payment ended up with the results contained in the news story.

  6. Here’s a better explanation of how checks are processed in the U.S. from the Federal Reserve Board:
    “The law (Check 21) facilitates check truncation by creating a new negotiable instrument called a substitute check, which permits banks to truncate original checks, to process check information electronically, and to deliver substitute checks to banks that want to continue receiving paper checks.”
    http://www.federalreserve.gov/paymentsystems/truncation/default.htm

  7. Check 21 is fascinating, Chris!
    When I first found out about that program I asked my bank about it and the tellers had no idea what I was talking about…
    What it means — with my bank anyway — is that when I write a check to my credit card company or phone company or water or power companies, the companies immediately “kill” the paper check and “turn it” electronic and they instantly take the money out of my account as if I had paid cash. There’s no float. You can’t rely, as some people did in the past, on a “float” of a week or so between banks processing those paper checks.
    With my bank, Check 21 also kills your check numbers because they are no longer checks and so they are not listed that way online. Paper becomes an electronic debit so the only proof you have that your check was paid while reconciling your checkbook is to try to synch up the amount paid. It is VERY confusing if you write a lot of checks and have a lot of electronic debits.
    Another thing — in my experience anyhoo — Check 21 is NOT reciprocal in that if you give me a check, I can’t transform that paper into an instant debit. I still have to wait the five excruciating business days (that starts counting down the next business day and not the day I actually make the deposit) for your out-of-state check to clear my bank. How backwards is that? If Check 21 works for credit card companies and utilities, it should work for the rest of us, too.

  8. Isn’t that the way it always works? We get out accounts debited quickly, while having to wait for deposits to become available under the funds availability rules set by our contract with the bank and by law.
    I love direct deposit since the bank isn’t allowed to hold the funds!

  9. Oh, and Chris — your point about Direct Deposit is right on targert! I love it!
    It’s funny, however, that any time something wonky goes on with your account… loss of ATM card… stop payment… etc. our bank ALWAYS suggests that we close the account and open a new one — and they can force you to do that if they wish and they always prefer to close an account because it is better for them than you.
    If you have Direct Deposit and your account is closed it can take at least two pay periods to change accounts! Banks use that Direct Deposit game to force a consumer’s hand to their will: Don’t complain about our stop check fees or our ATM replacement fees or we’ll just close your account and open a new one. Nasty, that!

  10. That’s truer than we may think, Carla! Storing some cash at home might be a good way to preserve your nest egg!
    The problem with Direct Deposit of any kind is that if there is any dispute or any problem of any sort, the entity doing the Direct Depositing has the right up TAKE BACK that money at any time without providing any reason whatsoever beforehand. We have no protection against that from happening — except to keep a balance in the account that is less than what is trying to be taken – but then you’ll pay insufficient funds fees. They get you all ways from Sunday!

  11. I remember the days when there used to be local banks. There were local rules in Indiana that prevented branch banking in the old days. As a result, every town and city had its own little bank. When those laws were repealed, the big huge banks came in and gobbled up all of the small “ma and pa” banks that couldn’t resist selling to the megabank that was going to open next door anyway.
    I’m curious about checking out the local credit union that I’m eligible to join. Being a shareholder in the financial institution might be nice.
    I can’t complain about the megabank where I have my accounts. We always try to deal with the same branch, so if there are any issues, we know we can speak to the manager.

  12. Chris!
    Yes, I fondly remember those neighborhood banks. One of my favorites in Nebraska was gobbled up by US Bank and then Wells Fargo.
    In many small villages of 400 people or less the center of the community economy is the bank and the grocery store and not the local “government.” The bank will take care of the drunks and the destitute by giving them a line of credit at the grocery store and then eating the cost. Local members of the community who would be unable to get a car loan at a mainstream bank can get the money they need from their hometown bank because those people are what make up the hometown and you take the bad with the good because everybody’s money is green.
    What’s the difference between a credit union and a bank? (I know that sounds like a setup line for a joke but I really don’t know the technical difference.)
    You’re smart to have a person who can help you at your bank! I’ve never met a bank policy that can’t be changed if someone powerful enough wants to bend a rule or two for you.

  13. When I was in college, I used to bank with a small hometown bank. A teller who worked there ended up becoming the mayor of the city. Unfortunately, the bank is no longer the hometown place it used to be. It’s part of some megabank corporation now.
    I remember going to Citibank when I was in Washington, D.C. If I had a question, the tellers would point to a row of phones and I’d have to call South Dakota or some place. Every check was out of state in D.C., so there was always a 10-day hold whenever I received money from my parents. I ended up signing up with a credit union because of the hassle and was much happier with that experience.
    Our current bank should be good to us.
    If we didn’t like them, we could always move our checking and savings accounts to another institution. Also, my credit card balance is small enough that I can pay it off, cut it up, and request that they close the account, if I wanted to. The only problem would be our home equity loan — we’d have to do some shopping around if we wanted to refinance since interest rates are going up.

  14. Yes! I remember those Citibank phones when we first moved to New York! They were awful and impersonal. I always found it strange how the phone people would want your Social Security number before they’d tell you anything even though you were standing in the middle of a bank with lots of photo ID on your and there were people everywhere and I’d tell them I was at a “public phone” in the middle of lots people and if there was another way for them to identify me. I was told the Social was the only way and that I should “whisper it” into the phone. Now that’s banking security!
    I’m glad to know you have a bank you like. That’s the best security of all.