*** Business Law Today Ch 19

Unauthorized EFT Transfer

(1) It is initiated by a person other than the consumer who has no actual authority to initiate the transfer, (2) the consumer receives no benefit from it, and (3) the consumer did not furnish the person "with the card, code, or other means of access" to his or her account. Constitutes as a federal felony, and those convicted may be fined up to $10,000 and sentenced to as long as ten years in prison.

Liability for Forged Indorsement

*** As a general rule, when a bank pays a check on which the drawer's signature is forged, the bank is liable and must credit the drawer's account. However, when a customer's negligence substatially contributes to the forgery, the bank may not be liable.

Overdraft

A check that is paid by the bank when the checking account on which the check is written contains insufficient funds to cover the check. Bank may (1) dishonor check or (2) pay the item and charge the customer's account.

One Year

A customer who fails to report a forged signature within ____ _____ from the date that the statement was made available for inspection loses the legal right to have the bank recredit his/her account.

Federal Reserve System

A network of twelve district banks and related branches located around the country and headed by the Federal Reserve Board of Governors. Acts as a clearinghouse.

Regulation E

A set of rules issued by the Federal Reserve System's Board of Governors to protect users of electronic fund transfer systems. Also requires that financial institutions inform consumers of their rights and responsibilities with respect to EFT systems.

Clearinghouse

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

Electronic Fund Transfer

A transfer of funds through the use of an electronic terminal, a telephone, a computer, or a magnetic tape. Difficulties: hard to issue stop-payment orders with these, fewer records are available, and the possibilities for tampering with a person's private banking info may also have increased.

Agency Relationship

Agent for payment = bank; agent for collection = you. Customer is ordering bank to pay amount specified on the check to the holder when the holder presents the check to the bank for payment. Bank obligated to pay/collect money in regards to its customer interactions.

Stop-Payment Order

An order by a bank customer to his or her bank not to pay or certify a certain check; bank MUST obey; binding for only 14 days unless confirmed in writing, which makes it effective for six months. However, customer must issue this within a reasonable time and a reasonable manner for the bank to act on it.

Bank's Liability with EFTs

Bank may be liable for legal costs and punitive damages (assessed to punish a defendent or to deter similar wrongdoers) if it fails to follow the proper procedures outlined by the EFTA in regard to error resolution.

Bank's Liability for Wrongful Payment

Bank obligated to recredit customer's account when checks are paid in spite of a stop-payment order. Bank is liable for ONLY amount of actual damages suffered by drawer.

Certified Check

Check accepted in writing by the bank on which it is drawn; essentially, the bank, by accepting the check, promises to pay the check at the time the check is presented; sets aside funds to cover future payment, thereby preventing the bank from denying liability.

Post-dated Check

Check bearing a future date; customer gives this to a bank.

Cashier's Check

Check drawn by the bank on itself; check is more readily acceptible as a substitute for cash.

Stale Check

Check presented for payment more than six months after its date; bank is not obliged to pay, though it may do so.

Customer's Liability for Wrongful Payment

Customer must have a valid legal ground for issuing a stop-payment order; otherwise, the holder can sue the drawer for payment; a person who wrongfully stops a payment on a check is liable to the payee for the amount of the check and can also be liable for consequential damages incurred by the payee.

Check

Draft drawn by a depositor ordering a bank to pay a sum of monney to the order of a third person.

Midnight

Each bank in the collection chain must pass the check on before _____ of the next banking day (meaning any part of a day that the bank is open to carry on substantially all of its banking functions) following its receipt.

Rule #1

It's your money.

Depositor

Liable to make sure there are enough funds in the bank to cover the checks (don't write the checks if you don't have the money!!).

Death or Incompetence of a Customer

Neither of these affect the bank's ability to decide whether or not to submit checks; allows banks to pay/certify checks for ten days following this event. Exception: if a person claiming an interest in the account orders the bank to stop payment.

Nonproprietary ATMs

Not owned or operated by the bank receiving the deposits. Five day hold is permitted on all deposits here. A depository institution has eight days to make funds available in new accounts (those open less than thirty days) and has an extra four days on deposits that exceed $5,000 (except deposits of government and cashier's checks).

Ordinary Care

Observance of reasonable commercial standards, prevailing in the area in which a person is located, with respect to the business in which that person is engaged. If a bank, fails to exercise this, the bank customer may escape (some) liability for forged check, though they failed to notify the bank within a thirty-day period.

Point-of sale systems

Online terminals that allow consumers to transfer funds to merchants to pay for purchases using a debit card.

Substitute Check

Paper reproduction of front and bank of an original check; created from a digital image of the original check.

Cashier's check or Certified check

Payment can not be stopped.

Electronic Fund Transfer Act

Provides a basic framework for the rights, liabilities, and responsibilities of users of EFT systems. Governs financial institutions that offer EFTs involving consumer accounts.

Rule #2

The bank's don't have money; they are holding your money. The longer they

Depositing and withdrawing funds

Two important banking activities generally not available yet online

ATMs, Point-of-sale systems, Direct deposits and withdrawals, and Internet payment systems

Types of EFT systems (4)

Bill consolidation and payment, transferring funds amoung accounts, and applying for loans

Types of online banking (3)

Deferred Posting

UCC says, "A bank may fix an afternoon hour of 2:00PM or later as a cutoff hour for the handling of money and items and the making of entries on its books." Any checks received after that hour "may be treated as being received at the opening of the next banking day."

Local Checks

When deposited, must be available for withdrawal by check or as cash within one business day from the date of deposit. Classified as such when the first bank to receive the check for payment and the bank on which the check is drawn are located in the same check-processing region.

Non-local Checks

When deposited, must be available for withdrawal within not more than five business days. A bank will have to credit the customer's account as soon as the bank receives the funds.

Bank's duty to honor checks

When properly presented for payment; also duty to accept deposits, and collect payment on or too customer that customer deposited into his account.

Check 21

Whereas manual check processing can take days, electronic check presentment can be done on the day of deposit. Has created a new negotiable instrument called a substitute check (created from a digital image of the original check). Doesn't require banks to change their current check-collection practices, but the creation of substitute checks facilitates the use of electronic check processing.