The US Government Addressing Funds Availability with the STOP Payments Fraud Act
- The STOP Payments Fraud Act gives banks more time to investigate suspicious payments.
- Extended holds on flagged checks and wires balance fraud prevention with faster availability.
- Banks must update policies, technology, and workflows to fully leverage the longer review window.
PYMNTS recently highlighted a new House bill that could quietly change the way financial institutions fight check and wire fraud: Rep. Young Kim’s STOP Payments Fraud Act. The proposal would allow banks to place extended holds on suspicious checks and wire transfers while potential fraud is investigated—addressing a long standing tension between rapid funds availability and practical fraud risk management.
Under current rules, financial institutions often must release funds within tight timeframes even when a transaction raises obvious red flags, leaving fraud teams to “chase the loss” after the payment is already in the customer’s hands. By explicitly authorizing longer holds on flagged items, the STOP Payments Fraud Act reframes time itself as a key fraud prevention tool: more breathing room for analytics, more opportunity for review, and more latitude to coordinate with counterparties before losses become final.
More Time Matters
That extra time is urgently needed. Industry data show that check fraud has surged in recent years, with deposit fraud up several hundred percent even as overall check volumes decline. Fraudsters are exploiting mail theft, “washed” checks, counterfeit stock, and forged signatures, often supported by dark web marketplaces for stolen check images and account data.
In the current environment, financial institutions have only a day or two (depending on their policy) to make funds available. And, even though fraud technologies like Kinective On-Us Fraud (formerly know as Anywhere On-Us Fraud) and Kinective Deposit Fraud (formerly Anywhere Deposit Fraud) can provide real-time fraud scores, many financial institutions lack the internal resources to review the items immediately.
This new legislation will enable financial institutions to leverage technologies and risk scores to put longer holds on suspicious items, which should create an appropriate amount of time and allow resources to review the fraudulent items and perform investigations before funds are lost.
Preparing for the STOP Payments Fraud Act to Pass
If the STOP Payments Fraud Act become law, financial institutions should take the opportunity to revisit their funds availability policies and procedures to ensure they are aligned with both regulatory requirements and evolving fraud risks. While the legislation would provide additional time to investigate suspicious transactions, simply extending hold periods should not be the goal. Instead, banks should evaluate how the additional review window can be integrated into a risk-based approach that balances fraud prevention with customer experience. This includes reviewing escalation procedures, hold criteria, exception processing workflows, and communication strategies to ensure suspicious items are identified and investigated efficiently.
Financial institutions should also assess whether their current fraud detection technologies, staffing levels, and operational processes are equipped to take full advantage of the extended review period. Additional time is only valuable if banks can quickly identify high-risk transactions and act on them. Institutions may want to revisit thresholds for placing holds, strengthen collaboration between operations and fraud teams, and evaluate technologies such as image forensic AI, payee name verification, and behavioral analytics.
By proactively updating funds availability policies and supporting processes, banks position themselves to better leverage the bill's protections while minimizing both fraud losses and unnecessary disruptions for legitimate customers.