Proposed House Bill Aims to Expand Holds for Suspected Fraudulent Checks and Wires

U.S. Rep. Young Kim (R-Calif.) on June 18, 2026, introduced the Strengthening Transaction Oversight and Preventing (STOP) Payments Fraud Act of 2026 (H.R. 9331). The legislation addresses a critical vulnerability in the current banking ecosystem: the regulatory misalignment between mandated expedited funds availability and the time required to investigate sophisticated, modern check and wire fraud.

If enacted by both houses of the U.S. Congress and signed by President Donald Trump, the bill would provide financial institutions with a vital safe harbor, allowing them to delay the availability of suspected fraudulent deposits without running afoul of the Expedited Funds Availability Act (EFAA).¹

The Core Problem: The "Investigation Gap"

Check fraud has surged dramatically over the last three years, largely driven by mail theft and check washing² – accounting for more than $1.3 billion in losses in 2023 and 2024 alone, according to data released alongside the legislation. Concurrently, wire fraud remains a persistent and sophisticated threat to the domestic payment system.

Under current federal law – specifically, the EFAA as implemented by Subpart B of Regulation CC (12 C.F.R. Part 229) – institutions are required to make deposited funds available within strict, rapid time frames. Often, banks are forced to release funds before their fraud department can verify the legitimacy of a flagged transaction, allowing bad actors to withdraw the money and leaving the institutions to absorb the loss. H.R. 9331 seeks to close this gap.

Key Provisions of the STOP Payments Fraud Act

The legislation proposes sweeping new tools for fraud prevention, bounded by strict antidiscrimination guardrails:

• Uncapped "Reasonable Suspicion" Holds (Checks Wires). The bill would amend Section 604 of the EFAA to state that standard availability requirements "shall not apply" where there is a reasonable suspicion of fraud. The text contains no 60-day cap for these transaction-level holds, delegating the duration entirely to the joint rulemaking process.
• The 60-Day "Greater Fraud Risk" Exception. A distinct provision under proposed new 604(g) of the EFAA (12 U.S.C. § 4003(g)) would allow the new-account availability rules to apply to accounts under circumstances identified by rule as carrying a "greater fraud risk," permitting holds "not to exceed 60 days for each such occurrence."
• Parity of Availability for Certain Checks. Section 2 of the bill would address foundational baseline availability, establishing parity requirements for specific categories of check deposits under the revised framework.
• Wire-Specific Class Protections. Though both check and wire holds require objective indicators, the proposed legislation under new Section 604(h)(2) would explicitly prohibit institutions from basing a wire-transfer fraud determination on a broad class of persons or general transfer categories.
• Overdraft Protection. If a bank delays crediting a wire transfer due to suspected fraud, it would be prohibited from charging an overdraft fee if the overdraft was caused by the hold and the bank failed to provide the required written notice of the delay.
• Information Sharing. The bill would protect the ability of financial institutions to communicate with other banks involved in the same deposit or transfer regarding the invocation of a fraud exception.

Operational Impact on Financial Institutions

For depository institutions – including banks, savings associations, credit unions, and U.S. branches and agencies of foreign banks – and their compliance teams, this legislation would necessitate a structural overhaul of how fraud detection and deposit operations intersect:

• Fraud-Detection and Deposit-Operations Systems. The principal operational impact would fall on fraud-detection tools and funds-availability workflows, which would need to generate and document the objective, transaction-specific indicators needed to justify a hold and then implement it within deposit operations. The Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) considerations would be a secondary touchpoint rather than the focus: A fraud hold may surface activity that separately warrants a Suspicious Activity Report, so institutions would need to ensure coordination between their fraud and BSA/AML functions, which are often run by distinct teams on separate systems.
• Core Processing System Overhauls. Most core deposit systems and wire platforms are not currently configured to implement the proposed uncapped, rule-defined exception holds or the proposed specific 60-day cap. Furthermore, overdraft fee matrices would require complex reprogramming to ensure that accounts subjected to a fraud hold are strictly exempted from automated overdraft fees, as contemplated by the bill.
• Heightened Examiner Scrutiny. Because the bill would impose no hard cap on "reasonable suspicion" check and wire holds, anticipate that examiners would review the duration of and justification for a bank's holds during routine safety and soundness exams. Institutions would need documentation demonstrating that these holds are deployed based on objective fraud indicators and that the hold periods are justified.

Broker-Dealers and Cash Management Accounts

Although the EFAA and Regulation CC govern depository institutions rather than broker-dealers, the operational impacts could reach broker-dealer cash management accounts. These products often rely on third-party-affiliated or third-party-clearing banks to process inbound customer checks and wires before the funds are credited to the brokerage account and become eligible for sweep. In that structure, the bill's new "reasonable suspicion" hold authority would most likely be exercised at the upstream bank or clearing level. 

Accordingly, the relevant Regulation CC fraud determination generally would attach to the bank handling the initial deposit or incoming transfer rather than to downstream program or sweep banks that receive aggregated, post-credit cash into omnibus or program accounts. Sweep banks, however, should not be viewed as categorically outside the contemplated scope, particularly where they also receive customer deposits or maintain customer-level accounts. But in a typical omnibus sweep structure, they are less likely to make the item-level fraud-hold determination. Thus, broker-dealers would need to anticipate settlement delays originating from their clearing firms or intake banks and review customer disclosures, sweep documentation and clearing agreements to account for extended hold periods before funds become eligible for sweep.

Legislative Outlook: What Comes Next?

H.R. 9331 was formally introduced in the U.S. House of Representatives on June 18, 2026, and referred to the House Committee on Financial Services, where Rep. Kim serves as a member. On June 30, 2026, the committee passed the bill.

• Current Momentum: Rising check fraud losses have drawn bipartisan attention to payments-fraud legislation in recent Congresses, which may generate support for modernizing banks' fraud-mitigation tools. The bill was introduced without co-sponsors, though it has since advanced through committee.
• The Path Forward: Having cleared the House Committee on Financial Services, the bill must now advance to a full House floor vote. If passed by the House, it would then require U.S. Senate action on either H.R. 9331 or companion legislation.
• The Rulemaking Battleground: Should the bill become law, the legislative text itself is only the first step. The true compliance burden would be determined during the congressionally mandated joint rulemaking process between the Federal Reserve Board and Consumer Financial Protection Bureau. Anticipate heavy lobbying during the public comment period from the banking industry advocating for lengthy, flexible hold allowances, while consumer advocacy groups might attempt to impose stringent limits on the uncapped reasonable suspicion provisions.

Next Steps

If the proposed legislation gains traction on Capitol Hill, institutions should begin evaluating whether their fraud-detection systems can generate the transaction-specific, objective alerts required to support such holds and not rely on broad categorization that could run afoul of emerging regulatory expectations.

Clients also should consider engaging with counsel who understand both the legislative process and operational realities of payments fraud compliance. Holland & Knight's Federal Government Affairs Team includes former members of Congress and professionals with deep experience on Capitol Hill who can help clients monitor the bill's progress, assess opportunities for advocacy and prepare for potential rulemaking and implementation.

For more information or questions, please contact the authors.

Notes

¹ 12 U.S.C. §§ 4001–4010

² "Check washing" refers to the theft and alteration of a legitimate check, typically by chemically erasing and rewriting the ink to change the payee, amount or other payment instructions to divert the proceeds to an unauthorized recipient.

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