The Potential Impact of Proposed Payments Fraud Legislation on Vendor Check Payments

August 24, 2026

Billions of paper checks continue to circulate in the U.S. financial system, with a face value of over $24 trillion in 2024 alone, according to the latest Federal Reserve Payments Study. As check fraud becomes one of the fastest-growing avenues for modern criminals, proposed payments fraud legislation could significantly affect how organizations issue vendor payments, manage funds availability delays, and maintain vendor relationships.

Key Insight	Explanation
The "Invisible" Check	Many consumers unknowingly use paper checks through online bill pay services. If a bank cannot complete a payment electronically, it often prints and mails a physical check on the customer's behalf.
Small Business Preference	Small businesses often favor checks because they provide better control over cash flow, frequently requiring two physical signatures before funds are released, and allow them to avoid the 3% processing fees associated with credit cards.
High Value, Low Volume	While checks represent a declining number of total transactions, they are used for very large sums.

At Issue: The Timeline of Clearing Checks Creates an Investigation Gap

Under current federal regulations, deposited checks typically clear within one to two business days. Banks and credit unions are generally required to make the first $275 of a qualifying deposit available by the next business day, with the remaining balance available by the second business day.

Financial institutions do have the ability to place extended holds for several reasons, such as if the deposit is into a new account (within the first 30 days) or involves a large amount. If the aggregate daily check deposits exceed $6,725, institutions can extend the hold on the excess amount by up to five additional business days.

These holds help financial institutions review transactions when there is a suspicion of fraud; however, these timelines can be long before the check has been fully cleared, and checks can still be returned unpaid later. This is called the investigation gap.

Proposed Legislation: The STOP Payments Fraud Act of 2026

To address the investigation gap between mandated funds availability and the time needed to verify suspicious transactions, U.S. Representative Young Kim introduced H.R. 9331, the Strengthening Transaction Oversight and Preventing (STOP) Payments Fraud Act of 2026.

The bill proposes a 60-day hold exception for accounts identified as carrying a "greater fraud risk." However, when there is a “reasonable suspicion” of fraud, it does not establish a time cap on these holds, delegating the duration to be determined by the Federal Reserve and the Consumer Financial Protection Bureau. This means vendors’ funds can be held indefinitely.

While this protects the financial system, it may cause settlement delays and cash flow disruptions while waiting on vendor payments to clear, and organizations have no control over the release of funds.

The act not only covers check payments but also wire transfer payments.

What does this mean for organizations making check and wire transfer payments to their vendors? It means that they should prepare for more rigorous fraud-detection workflows that prioritize transaction legitimacy over the speed of funds availability. This can affect vendor relationships and may result in vendors requesting changes to absorb the potential extended payment schedule.

Potential vendor requests:

More Favorable Payment Terms – Vendors may request faster payment terms to absorb potential delays with funds availability.
A Transition to ACH Payments – This payment method is preferred by organizations; however, there should be a controlled process in place to avoid the risk of payment fraud when collecting and updating vendor banking information.
A Transition to Faster Payments Networks – While these methods may allow immediate fund transfers, there is increased risk because once a payment transaction occurs, it is irrevocable. If the fraud risk identified by the bank resulted in a different payment rail for subsequent payments to avoid the same delays, the funds would not be able to be retrieved.
Impact to Vendor Operations – The delay in funds availability may impact the ability of your vendors to continue operations, increasing the risk they may not be able to deliver critical products or services per their agreement — which may then impact the operation of organizations.

Organizations should determine in advance how they will respond to these requests and prepare the necessary processes, controls, and approvals to support them when needed.

Conclusion

Extended holds may protect the financial system, but they can also create uncertainty for vendors, delay access to funds, and place additional pressure on organizations to manage exceptions. As proposed payments fraud legislation advances, organizations making check and wire payments should proactively assess the potential operational, financial, and vendor relationship impacts to respond more effectively if these proposed requirements become law.