In this issue of Community Banker, we address questions surrounding stop payment orders and a bank’s obligations when handling them.

YOU ARE ASKING …
Q: A customer placed a stop payment on a check but the bank accidentally paid it anyway. What liability does the bank face, and how long is a stop payment order effective?

A: Under the Uniform Commercial Code, a stop payment order is effective for six months and must be renewed if the customer wants continued protection. If the bank fails to honor a valid stop payment request and pays the item, the bank may be liable for the loss, unless the customer would have been obligated to pay the check regardless (for example, if the payee had a valid claim to the funds). (See our discussion below for details and best practices.)

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