Stop-Payment Procedures

From time to time, a consumer might want to stop a preauthorized withdrawal from his or her account. Regulation E provides rules that the consumer must follow to do this. If the consumer follows those rules, you must follow other Regulation E rules in response.

To stop a preauthorized withdrawal, the consumer must notify you either orally or in writing at any time up to three business days before the scheduled date of the transfer. [12 CFR 1005.10(c)(1)] You can require that oral notifications be confirmed in writing within 14 days of the oral notification. To do this, you must, at the time of the oral notification, tell the consumer that the oral notification must be confirmed in writing and tell the consumer the address to which the confirmation must be sent. [12 CFR 1005.10(c)(2)]

If the customer notifies you in time, you must stop the payment as requested. If you required a written confirmation of an oral stop-payment order and the consumer does not provide one, the stop-payment order will no longer be binding on you 14 days after the consumer made it. [12 CFR 1005.10(c)(2)] If the order is made in writing or is properly confirmed in writing, you should follow the consumer’s instructions whether the order applies to all payments to the particular payee or just to the next payment. Without any particular instructions regarding that point, you should probably assume that all payments to that payee have been stopped until the consumer instructs you otherwise. [Commentary, 12 CFR 1005.10(c)-2]

Suppose a consumer sends the stop-payment order by e-mail or by some other electronic form. Can you require the consumer to confirm the electronic message in a paper format? Prior to the April 2001 amendments to Regulation E, which added Section 17 authorizing electronic disclosures, the answer was “yes.” This comes from Supplementary Information the FRB provided with an interim rule it issued on March 25, 1998. (See the Federal Register for March 25, 1998, at page 14531.) That interim rule amended Regulation E to add a provision [a new subsection (c) in Section 4, 12 CFR 1005.4(c)] authorizing financial institutions to provide Regulation E disclosures in electronic form. The March 25, 1998, provision no longer exists of course—the April 2001 amendment deleted it and added Section 17, which itself was subsequently deleted. (See the Federal Register for April 4, 2001, beginning at page 17786.)

Unfortunately, neither the April 2001 amendment nor the Supplementary Information issued with it makes any mention of stop-payment orders in electronic form. It is simply not clear whether you can require that an electronic stop-payment order be confirmed in a paper format.

But recall our earlier section in this chapter “Special rules for electronic disclosures” for details about the federal statute known as the Electronic Signatures in Global and National Commerce Act (E-SIGN). (See our earlier section in this chapter under the heading “Special rules for electronic disclosures” for details.) This statute contains a provision that might have bearing on this issue. The provision states that the statute does not “require any person to agree to use or accept electronic records or electronic signatures, other than a governmental agency with respect to a record other than a contract to which it is a party.” [15 USC 7001(b)(2)] If this provision can be read to say that a financial institution need not accept electronic stop-payment orders at all, then, logically, the institution could accept them on the condition that they be confirmed in a paper format. Keep this issue in mind and watch for some clarification.

Though the status of electronic stop-payment orders is doubtful, it is clear that you can require written confirmation of an oral stop-payment order.