Ch. 27: Bank Deposits, Collections, and Fund Transfers Flashcards
Depositary bank
The bank in which the payee or holder deposits the check for credit.
Provisional credit
Tentative credit for the deposit of an instrument until final credit is given.
Final credit
Payment of the instrument by the payor bank; if the payor bank (drawee) does not pay the check, the depository bank reverses the provisional credit.
Intermediary bank
A bank, other than the depositary or payor bank, involved in the collection process.
Clearinghouse
And association of banks for the purpose of settling accounts on a daily basis.
Collecting bank
Any bank (other than the payor bank) handling the item for payment.
Agent collecting bank
Is an agent or subagent of the owner of the check until the settlement becomes final.
Duty of care
A collecting bank must exercise ordinary care in handling an item.
Duty to act timely
A collecting bank acts timely if it takes proper action before the midnight deadline (mid night of the next banking day).
Indorsements
If an item is restrictively endorsed “for deposit only,“ only a bank may be a holder.
Warranties
Customers and collecting banks give warranties on transfer, resentment, and encoding.
Final payment
Occurs when the payor bank does any of the following, which ever happens first: (1) pays an item in cash, (2) settles and does not have the right to revoke the settlement, or (3) makes a provisional settlement and does not properly revoke it.
Payor bank
Under its contract with the drawer, the payor or drawee bank agrees to pay to the payee or order checks that are issued by the drawer, provided the order is not countermanded by a stop payment order and provided there are sufficient funds in the drawer’s account.
Contractual relationship
The relationship between a payor bank and its checking account customer is primarily the product of their contractual arrangement.
Payment of an item
When a payor receives an item for which the funds in the account are insufficient, the bank may either dishonor the item and return it or pay the item and charge the customer’s account even though an overdraft is created.
Substitute check
A paper reproduction of the original check that for all purposes is the legal equivalent of an original check.
Stop payment order
An oral stop payment order (a command for a drawer to a drawee not to pay an instrument) is binding for 14 calendar days; a written order is effective for six months and may be renewed in writing.
Banks right to subrogation on improper payment
If a payor bank pays an item over a stop payment order or otherwise in violation of his contract, the payor bank is subrogated to (obtains) the rights of (1) any holder in due course on the item against the drawer or maker; (2) the payee or any holder against the drawer or maker; and (3) the drawer or maker against the payee or any other holder.
Customer’s duties
The customer must examine bank statements and items carefully and promptly to discover any unauthorized signatures or alterations.
Electronic funds transfer
Any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account.
Electronic funds transfer act
Provides a basic framework establishing the rights, liabilities, and responsibilities of participants and consumer electronic funds transfers.
Financial institution responsibility
Liability to a consumer for all damage proximately caused by its failure to properly handle an electronic funds transfer transaction.
Wholesale funds transfers
The movement of funds through the banking system; excludes all transactions governed by the electronic funds transfer act.
Payment order
An instruction of a sender to a receiving bank to pay, or to cause another bank to pay, a fixed amount of money to a beneficiary.
Originator
Sender of the first payment
Sender
Party who gives an instruction to the receiving bank.
Receiving bank
Bank that receives sender’s instructions.
Originator’s bank
Either the bank that receives the original payment order or the originator if the originator is a bank.
Beneficiary’s bank
Bank identified in a Payment order to credit the beneficiary’s account.
Beneficiary
Person to be paid by the beneficiary bank.
Intermediary bank
Any receiving bank other than an originatoroor beneficiary’s bank.
