By Mark D. Killian
“Read the customer agreement and fine print carefully.”
That’s the admonition Barry Wilen has for his colleagues in the Bar after he learned the hard way that putting a stop-payment order on a lost check from his trust account doesn’t necessarily end the matter.
Wilen issued a $2,938 check to a client in November 2009. The client subsequently reported the check lost. So in January 2010, the Hollywood lawyer placed a stop-payment order on the check. Wilen then reissued the check and thought that was the end of it.
It wasn’t. Two and a half years after the original check was issued — the one he placed the stop-payment order on — it was cashed. When Wilen contacted his bank he was told the bank had the right to honor the check and that the only way he could protect himself was to renew the stop-payment order every six months or close his trust account and open a new one.
“Don’t lull yourself into passivity just because you have a stop-payment order in effect,” said Wilen, noting banks also are permitted to charge a fee each time the stop-payment order is renewed.
The bank never made good on the check, holding that the burden was on Wilen to maintain the stop-payment order. But Wilen did — under threat of litigation — get his one-time client to return the funds.
Then early this year, Wilen wrote a $650 check to a mediation firm that got lost on its way from Hollywood to Miami.
“So it’s back to the bank for another stop-payment order,” he said.
This time, however, Wilen said the bank manager read him a disclosure statement that said when they put a stop-payment order in effect, the bank “has a reasonable opportunity to act on it.” But, Wilen said, the discolsure didn’t define what’s reasonable and further held that if the check is converted to an electronic debit, the electronic debit may be paid.
“What this now does is make the whole stop-payment potential illusory and unenforceable by me,” Wilen said. “When I mail a check to one of my creditors, I have no knowledge — don’t know or have the ability to approve or disapprove — if they convert my physical check to an electronic debit.”
He said converting a paper check to an electronic debit is becoming increasingly standard for big companies because it is a quicker and less expensive way for the businesses to receive payments.
“That means I, the payor, have no control over whatever the heck the payee does if they convert my check into an electronic debit,” Wilen said. “Nobody asked my permission; I don’t have any ability to veto that, and yet the stop-payment order I put into effect thinking that it is going to protect me may not protect me. The bank is saying they have the right to pay on that.”
Wilen’s concerns have prompted Rep. Elaine Schwartz, D-Hollywood, to introduced HB 1369, which provides that a stop-payment order remains in effect permanently unless a bank receives written notification of cancellation of such order. It also prohibits banks from charging more than a single fee for a stop-payment order to remain in effect permanently.
“It’s scary; it is very scary,” said Schwartz, who also plans to amend her bill to define “reasonable opportunity” and state that electronic debits are covered by stop-payment orders.
Schwartz, a lawyer, said HB 1369 currently has no Senate companion and has been assigned to the Insurance & Banking Subcommittee and Regulatory Affairs Committee. She is hopeful it will be heard this year.
“From a legislative standpoint, this could be easily fixed; it just would not be something that the banks want to do,” said Schwartz, noting the banking industry generally opposes legislation that would require it to do something in one state that it doesn’t have to do in others.
Schwartz, however, said filing a bill starts a conversation, and it often takes a number of sessions to get a bill passed.
When Wilen told his banker he was about to pay off a $400,000 mortgage for a client and wondered what would happen if that check got lost, he was told the smartest thing to do was close out his trust account — the one he has had for 36 years and on any given day has dozens of outstanding checks.
Wilen said it’s not practical to close his trust account every time he has to put a stop-payment order into effect.
“Before you reissue a check, I think you need to take a good hard look at whom you are sending a replacement check and how much it is and what is the reason for replacing it,” Wilen said. “If it is not a person you regularly do business with, you may want to get them to sign an affidavit. That may be another possible level of protection.”