Chapter 15: "Banking in the Digital Age"(Opens a new Window)

Question 1

(CC)

Identify types of negotiable instruments.

Answer 1

Check

Cashier Check: A check drawn by a bank on itself.

Traveler’s check: A check that is payable on demand, drawn on or payable through a bank, and designated as a traveler’s check.

Certified Check: A check that has been accepted by the bank on which it is drawn. Essentially, the bank, by certifying (accepting) the check, promises to pay the check at the time the check is presented.

Question 2

Stale check

Answer 2

A check, other than a certified check, that is presented for payment more than six months after its date.

Bank does not have to pay the check.

If bank pays the check in good faith only for check will come from the customer’s account.

Question 3

Stop Payment Order

Answer 3

Customer can order the bank to not pay a check.

Customer must have a legitimate reason.

They must notify the bank in a reasonable time and manner. (In writing or electronically - can do over the phone but only good for 14 days)

Written Stop payment effective for SIX months - must then b renewed in writing.

Bank will be liable if they make payment in spite of stop payment order.

Question 4

Incompetency or Death of a customer

Answer 4

Bank will still process your checks and its to liable until they KNOW you are either DEAD or DECLARED LEGALLY INCOMPETENT.

Even when you are dead the bank can still cash your check for 10 more days.

Question 5

Statute of Limitation for forged signature and indorsement

Answer 5

Customer fail to report forged signature barred from recovery from bank at ONE year

Bank is relieved of liability if the customer fails to report the forged endorsements within THREE years of receiving the bank statement that contained the forged item.

Question 6

(CC)

Explain the benefits and challenges of electronic banking.

Answer 6

Difficulties

• Difficult to issue stop-payment orders
• Fewer records are available to prove or disprove that a transaction took place.
• Possibilities for tampering with a person’s private banking information have increased.

Question 7

Bank’s duty to accept deposits

Answer 7

1) Any local check (drawn on a bank in the same area) deposited must be available for withdrawal by check or as cash within ONE business day from the date of deposit.
2) For nonlocal checks, the funds must be available for withdrawal within not more than FIVE business days.
3) A bank must credit a customer’s account as soon as the bank receives the funds.
4) For cash deposits, wire transfers, and government checks, funds must be available on the next business day.
5) The first $100 of any deposit must be available for cash withdrawal on the opening of the business day after deposit.

Exceptions

If you deposit in a nonproprietary (not owned by bank receiving deposit) ATM - FIVE day hold on all deposits (including cash)

New accounts (open less than 30days) - EIGHT days to make funds available.

Question 8

collecting bank

Answer 8

Any bank handling an item for collection, except the payor bank.

Question 9

intermediary bank

Answer 9

Any bank to which an item is transferred in the course of collection, except the depositary or payor bank.

Question 10

payor bank

Answer 10

The bank on which a check is drawn (the drawee bank).

Question 11

depositary bank

Answer 11

The first bank to receive a check for payment.

Question 12

Federal Reserve System

Answer 12

A network of twelve central banks, located around the country and headed by the Federal Reserve Board of Governors. Most banks in the United States have Federal Reserve accounts.

Question 13

electronic fund transfer (EFT)

Answer 13

A transfer of funds with the use of an electronic terminal, a telephone, a computer, or magnetic tape.

Question 14

clearinghouse

Answer 14

A system or place where banks exchange checks and drafts drawn on each other and settle daily balances.

Question 15

substitute check

Answer 15

A negotiable instrument that is a paper reproduction of the front and back of an original check and contains all of the same information required on checks for automated processing.

Question 16

Regulation E

Answer 16

A set of rules issued by the Federal Reserve System’s Board of Governors under the authority of the Electronic Fund Transfer Act to protect users of electronic fund transfer systems.

Question 17

digital cash

Answer 17

Funds contained on computer software, in the form of secure programs stored on microchips and other computer devices.

Question 18

Smart cards

Answer 18

Prepaid funds recorded on a microprocessor chip embedded on a card. One type of e-money.

Question 19

Smart cards

Answer 19

Prepaid funds recorded on a microprocessor chip embedded on a card. One type of e-money.

Question 20

When a stock brokerage firm handles a check for payment or collection, then the:

a. check is covered by Article 4.

b. check is not covered by Article 4.	
c. check is covered by both Articles 3 and 4.	
d. check is covered by Article 3.

Answer 20

b. check is not covered by Article 4.

Article 4 defines a bank as “a person engaged in the business of banking, including a savings bank, savings and loan association, credit union, or trust company. It does not include any other institution, such as stock brokerage firms, even though such firms commonly provide checking accounts for their customers.

Question 21

The main focus of Article 4 of the UCC is:

a. detailing the law covering the requirements for negotiability.

b. creating rules for governing the transfers of inventory.	
c. establishing a framework for banking relationships.

Answer 21

c. establishing a framework for banking relationships.

Question 22

Article 3

Answer 22

Article 3 sets forth the requirements for all negotiable instruments, including checks

Question 23

Article 4

Answer 23

Article 4 establishes a framework for deposit and checking agreements between a bank and its customers. Article 4 also governs the relationships of banks with one another as they process checks for payment. A check therefore may fall within the scope of Article 3 and yet be subject to the provisions of Article 4 while in the course of collection. If a conflict arises between Articles 3 and 4, Article 4 controls

Question 24

When a bank wrongfully dishonors a cashier’s check, what can a holder recover?

Answer 24

All expenses incurred, interest, and consequential damage.

Question 25

Cleveland’s ex-wife, Marissa, obtains a court order that requires Cleveland to make his child support payments with a check that his bank guarantees. This type of check is known as _____

Answer 25

certified check

a certified check is a check written by Cleveland that his bank certifies it will pay with funds put aside for that purpose. It gives Marissa immediate access to the funds.

Question 26

Once a check is certified, the drawer and any prior indorsers are completely discharged from liability on the check.

a. True
b. False

Answer 26

True

Question 27

Steffan opens a checking account and writes a check on his account. The legal relationship between Steffan and the bank can be described as a(n) _____

Answer 27

agency relationship

The legal relationship can be described as an agency relationship. When a customer writes a check, the customer’s bank acts as his or her agent and is obligated to honor the customer’s request. Unless the bank or the customer harms the other in some way, no tort ever arises. Also, simply writing a check does not create a secured transaction relationship and certainly a bank and its customers do not have a sales relationship

Question 28

Three types of relationships that come into being when a customer opens a checking account and deposits funds.

Answer 28

Creditor-debtor

Agency

Contractual

Question 29

The general rule concerning the forged checked that is cashed is that the _____

Answer 29

forged signature has no legal effects as the drawer’s signature.

Question 30

A person who signs a check and leaves the dollar amount for someone else to fill out is barred from protesting when the bank unknowingly and in good faith pays whatever amount is shown.

a. True
b. False

Answer 30

True

Question 31

Why can the bank recover the amount of loss of an altered check from the transferor who presented the check for payment?

a. Because transferor, by presenting a check for payment, warrants that the check has not been altered.

b. Because the transferee was not in a position to understand.

Answer 31

a. Because transferor, by presenting a check for payment, warrants that the check has not been altered.