Stop On Check Payment May Not Prevent A Loss

When Carolyn Franklin got into a scrap with an auto dealer over the terms of a car loan she’d signed the night before, she fought back the only way she could think of. She drove the car back to the showroom, tossed the keys at the manager when tempers flared, then stopped payment on the check she’d written as a down payment.

Her impulsive strategy was flawed, however. What she didn’t count on was that her bank would mistakenly cash the check, causing several other checks to bounce - including a down payment on another vehicle - and undercutting whatever leverage she thought she might have in the dispute.

But Franklin’s saga underscores the reality that consumers have only limited protection when they pay for goods and services with checks, because stopping payment on paper checks can be a weak weapon in the wars of commerce. Here’s why:

Banks charge a fee to stop payment on a check. You might want to think twice if the dispute is over a small amount.

Consumers often wait too long to block the payment, allowing their adversary time to cash the check.

Your bank could goof. In Franklin’s case, she ordered the stop payment when her branch opened the next business day after buying the car, but the check slipped through. Franklin sued the bank in small-claims court, but won only $75.28 judgment to cover some bounced-check fees.

If you phone in the stop-payment request, many banks will require you to put the request in writing within 14 days. If you don’t, the request expires and your creditor can resubmit the check. Ask your bank about its policy if you’re in a dispute.

And all stop-payment requests expire in six months.

“People should be aware of that, because there are some shady characters who know that,” said Ruth Susswein, executive director for Bankcard Holders of America, a consumer group based in McLean, Va. “They will hold that check for six months and day, then put it through. And it will go through.”

Stopping payment on a check does not relieve you of a legal binding debt. For example, Franklin was obligated to buy the car because she had signed an enforceable contract, but the dealer compromised and let her refinance it through her credit union.

If you don’t have any choice but to pay in cash or by check, Consumers Union recommends you at least try to pay in installments. That way, you can pay incrementally, for example, as a contractor makes satisfactory progress on your project.

Paying with a credit card offers more consumer protection than either cash or checks. Under the Fair Credit Billing Act, you can dispute a payment to the card issuer if, for example, you were dissatisfied with the product, the item delivered isn’t what you ordered.

You must lodge your dispute in writing within 60 days of the postmark date on the bill.