Ch. 27: Bank Deposits, Collections, and Fund Transfers

Question 1

Depositary bank

Answer 1

The bank in which the payee or holder deposits the check for credit.

Question 2

Provisional credit

Answer 2

Tentative credit for the deposit of an instrument until final credit is given.

Question 3

Final credit

Answer 3

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.

Question 4

Intermediary bank

Answer 4

A bank, other than the depositary or payor bank, involved in the collection process.

Question 5

Clearinghouse

Answer 5

And association of banks for the purpose of settling accounts on a daily basis.

Question 6

Collecting bank

Answer 6

Any bank (other than the payor bank) handling the item for payment.

Question 7

Agent collecting bank

Answer 7

Is an agent or subagent of the owner of the check until the settlement becomes final.

Question 8

Duty of care

Answer 8

A collecting bank must exercise ordinary care in handling an item.

Question 9

Duty to act timely

Answer 9

A collecting bank acts timely if it takes proper action before the midnight deadline (mid night of the next banking day).

Question 10

Indorsements

Answer 10

If an item is restrictively endorsed “for deposit only,“ only a bank may be a holder.

Question 11

Warranties

Answer 11

Customers and collecting banks give warranties on transfer, resentment, and encoding.

Question 12

Final payment

Answer 12

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.

Question 13

Payor bank

Answer 13

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.

Question 14

Contractual relationship

Answer 14

The relationship between a payor bank and its checking account customer is primarily the product of their contractual arrangement.

Question 15

Payment of an item

Answer 15

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.

Question 16

Substitute check

Answer 16

A paper reproduction of the original check that for all purposes is the legal equivalent of an original check.

Question 17

Stop payment order

Answer 17

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.

Question 18

Banks right to subrogation on improper payment

Answer 18

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.

Question 19

Customer’s duties

Answer 19

The customer must examine bank statements and items carefully and promptly to discover any unauthorized signatures or alterations.

Question 20

Electronic funds transfer

Answer 20

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.

Question 21

Electronic funds transfer act

Answer 21

Provides a basic framework establishing the rights, liabilities, and responsibilities of participants and consumer electronic funds transfers.

Question 22

Financial institution responsibility

Answer 22

Liability to a consumer for all damage proximately caused by its failure to properly handle an electronic funds transfer transaction.

Question 23

Wholesale funds transfers

Answer 23

The movement of funds through the banking system; excludes all transactions governed by the electronic funds transfer act.

Question 24

Payment order

Answer 24

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.

Question 25

Originator

Answer 25

Sender of the first payment

Question 26

Sender

Answer 26

Party who gives an instruction to the receiving bank.

Question 27

Receiving bank

Answer 27

Bank that receives sender’s instructions.

Question 28

Originator’s bank

Answer 28

Either the bank that receives the original payment order or the originator if the originator is a bank.

Question 29

Beneficiary’s bank

Answer 29

Bank identified in a Payment order to credit the beneficiary’s account.

Question 30

Beneficiary

Answer 30

Person to be paid by the beneficiary bank.

Question 31

Intermediary bank

Answer 31

Any receiving bank other than an originatoroor beneficiary’s bank.