Ch. 28 Banking in the Digital Age Flashcards
If a conflict arises b/w Articles 3 and 4, which article controls?
Article 4
What is a check?
- Special type of draft drawn on a bank (ordering bank to pay a fixed amount of money on demand)
How does Article 4 define a bank?
- “a person engaged in the business of banking, including a savings bank, savings and loan association, credit union or trust company”
If a brokerage handles a check for payment or collection, is the check covered by Article 4?
NO
To avoid payment or collection problems, what may a payee insist?
- Payment by an instrument that has already been accepted by the drawee
- E.g. cashier’s check, traveler’s check, or a certified check
If a bank wrongfully dishonors a cashier’s check, can the holder recover from the bank all expenses incurred, interest, and consequential damages?
YES
How does a teller’s check differ from a cashier’s check?
- Drawn by a bank on another bank
When may a teller’s check be used?
- When a person withdraws funds from one bank to transfer to an account at another bank
What is a traveler’s check?
Must be signed by drawer again when cashed
What is a certified check?
Bank accepted money and bank will pay check from its own account
A creditor-debtor relationship is created between whom?
- A customer and a bank when, for example, the customer makes cash deposits into a checking account
- Customer becomes creditor
- Bank becomes debtor
When a drawee bank wrongfully fails to honor a check, is it liable to its customers for damages resulting from its refusal to pay?
YES (customer does not have to prove that bank breached its contractual commitment or was negligent)
Who is liable to the payee or to the holder of a check in a civil suit if a check is dishonored for insufficient funds?
Customer
Does the bank have a liability to the customer if it properly dishonors a check for insufficient funds?
NO
What was the key question in the Afiriyie v. Bank of America case?
Whether the customer could bring a lawsuit for wrongful dishonor even though the check in question had been drawn on an account in the bank’s name
When the bank receives an item properly payable from its customer’s checking account but the account contains insufficient funds to cover the amount of the check, what are the bank’s two options?
1) Dishonor the item
2) Pay the item and charge the customer’s account, thus creating an overdraft
If a bank has an “overdraft protection agreement” with a customer, but fails to honor a check b/c it would create an overdraft, would this be treated as a wrongful dishonor?
YES
What is considered a stale check?
- Check that is presented for payment more than 6 months from its date
What is a stop order payment?
- Order by a customer to his or her bank not to pay a certain check
What is the general rule when a bank pays on a forged signature?
Must recredit customer’s account
Sometimes the same wrongdoer forges the customer’s signature on a series of checks. To recover for all of the forged items, the customer must do what as stated by the UCC?
- Customer must discover and report the first forged check to the bank w/i 30 calendar days of the receipt or availability of the bank statement
- Failure to notify the bank w/i this time period discharges the bank’s liability for all forged checks that it pays prior to notification
What does TISA stand for?
Truth in Savings Act
The bank collection process operates under which article of the UCC?
Article 4
What do you call the first bank to receive a check for payment?
Depositary bank
What do you call the bank on which a check is drawn?
Payor bank
What do you call any bank except the payor bank that handles a check during some phase of the collection process?
Collecting bank
Any bank except the payor bank or the depositary bank to which an item is transferred in the course of this collection process is called what?
Intermediary bank
The Federal Reserve System is a network of how many district banks?
12
What is a clearinghouse?
- A place where banks exchange checks and drafts drawn on each other and settle daily balances
Why did Congress pass the Check Clearing in the 21st Century Act (Check 21)?
- To streamline the check-collection process
- AND to improve the overall efficiency of that nation’s payment system
What is float time?
- The time b/w when a check is written and when the amount is actually deducted from the account
What is an ETF?
- Electronic fund transfer
- Transfer of funds made by the use of an electronic terminal, a telephone, a computer, or magnetic tape
What are smart cards?
- Plastic cards containing computer microchips that can hold much more info than magnetic strips can
What does ECPA stand for?
The Electronic Communications Privacy Act
What are the two major wire payment systems?
1) Federal Reserve wire transfer network (Fedwire)
2) New York Clearing House Interbank Payments Systems (CHIPS)
Commercial wire transfers are governed by what article of the UCC?
Article 4A
What is a cashier’s check?
- bank serves as drawer and drawee
- bank assumes responsibility
- equivalent legally to an accepted check
If there is an overdraft on a joint account, when is the customer held liable?
- Customer only liable if signed overdraft or benefited from it
If Will gives his bank an oral stop payment order, for how long is it good for?
14 days
If will gives his bank a written stop payment order, for how long is it good for?
6 months
Chase Bank pays on a forged signature of Will. Chase Bank must recredit Will’s account unless what?
- Will is negligent before of after the forgery
- Before: leaves big spaces, rubber stamp unlocked, sloppily written
- After: Fails to examine bank statement and notify bank w/i one year; must ID and report forged drawer’s signatures w/i 30 days of receiving bank statement
If Chase bank paid on a forged indorsement, but Will didn’t object for a LONG period of time, is the bank liable to recredit Will’s account?
NO (see Michigan Basic Property Insurance Association v. Washington)
