BLAW CH 18

Banks usually verify signatures only on checks of what amounts

2500 or greater

Intermediary bank

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

Drawee

Bank/Financial Institution on which the CHECK IS DRAWN

Electronic Fund Transfer Act

Protects consumers against unauthorized electronic fund transactions including debit and credit card purchases, ATM withdrawals, and automatic bank account withdrawals

Payor Bank

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

Depository bank

The first bank to receive a check for payment

Drawer

The person who WRITES THE CHECK

Check

Type of draft drawn on a bank, ordering the bank to pay a fixed amount of money ON DEMAND

on-us item

check that is presented for payment where the depository bank is also the payer bank. That is, the drawer and payee or holder have accounts at the same bank

When wrongdoer forges customer's signatures on a series of checks, the customer must discover and report the first forged check to bank within ______________________of receipt/availability of bank statement in order to recover for forged items.

30 calendar days

substitute check

A paper reproduction of a check that has been copied electronically. Original check can now be destroyed

deferred posting rule

A rule that allows banks to fix an afternoon hour of 2:00 p.m. or later as a cutoff hour for the purpose of processing items

Regulation E

A set of rules issued by the Federal Reserve System's Board of Governors to protect users of electronic fund transfer systems.

Collecting Bank

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

Banking Day

Any day that a bank is open to the public for business

Commercial fund transfers are governed by ___

Article 4A of UCC

Generally, ______ suffers loss when a bank pays a check on which the drawer's signature if forged. _____ may recover some of loss from customer if the customer's negligence substantially contributed to forgery

Bank, Bank

Direct deposits and withdrawals

Customers can preauthorize deposits and withdrawals performed on their accounts electronically

What is the purpose of "Traveler's Checks"?

Designed to be safe substitute for cash when a person is traveline

Examples of Customer Negligence (2)

Ex: person writes check and leaves large gaps around numbers/words or signs check and leaves dollar amount for someone else to fill in Ex: If bank can trace its loss on successive altered checks to the customer's failure to discover the initial alteration, the bank can reduce liability for reimbursing customer's account

What has to be the case for a customer to be subject to criminal prosecution for writing a bad check

If there is proof of intent to defraud the payee/holder of the check

What are some characteristics of a "Cashier's Check"

More readily acceptable as a substitute for cash (cash equivalent)

Traveler's Check

Payable on demand, drawn on or payable at financial institution and designated as "Traveler's Check".

T or F Even when a bank knows of death of its customer, for ten days after the date of death, the bank can pay or certify checks drawn on or before the date of death

T

T or F If bank fails to detect alteration, it is liable to its customer for loss because it did not pay as customer ordered. Bank's loss is difference between original amount and amount paid

T

Certified Checks

a check that has been accepted by the bank on which it is drawn. When drawee bank accepts (certifies) the check, it immediately charges the drawer's account with the amount of the check and transfers those funds to its own certified check account. Essentially, a certified check sets the funds aside.

Overdraft

a check written on a checking account in which there are insufficient funds to cover the amount of the check

Electronic Funds Transfer (EFT)

a disbursement system that uses wire, telephone, or computer to transfer cash from one location to another

Signature cards

allow bank to verify whether the signatures on its customers' checks are genuine.

Stop-payment order

an order by a customer to her bank not to pay a certain check

The Bank-Customer Relationship "Agency Relationship"

arises between customer and bank when the customer writes a check on her account. Customer is ordering the bank to pay the amount specified on the check to the holder when the holder presents the check to the bank for payment. Bank become's customer's agent and is obligated to honor customer's request.

When check reaches payor bank...

bank is liable for the face amount of the check, unless payor bank dishonors it

If bank pays check in spite of a stop-payment order, who is liable?

bank will be obligated to recredit the customer's account

Each bank in collection chain must pass check on before

before midnight of next banking day following its receipt

Stored-value cards

cards that represent money that the holder has on deposit with the issuer, such as a department store (gift card)

stale check

check that is presented for payment more than 6 months from its date

Automated Teller Machines (ATMs)

connected online to bank's computers.

The Bank-Customer Relationship "Contractual Relationship"

contractual rights and duties of the bank and customer depend on the nature of the transaction

Check Clearing in the 21st Century Act (Check 21)

created new negotiable instruments (substitute checks) to facilitate use of e-check processing

If a check is dishonored for insufficient funds, the customer is liable to ____

customer liable to the payee/holder of check in a civil suit.

Traveler's checks are issued for _________ amounts

fixed amounts

When bank receives item payable from its customer's checking account but the account does not contain sufficient funds, it can either....... (2 options)

it can either 1) dishonor it or 2) pay item and charge the customer's account (overdraft)

Customer's agreement with the bank includes a general obligation for the bank to...

keep sufficient funds on deposit to cover all checks written

Online payment systems

most financial institutions permit their customers to access the institution's computer system via Internet and direct a transfer of funds between accounts or pay a particular bill. Payments can be made on a one-time or recurring basis.

Is bank obligated to pay stale check?

no

When bank properly dishonors a check for insufficient funds, is the bank liable at all?

no - not if properly dishonored.

Bank's authority becomes ineffective only after

notification of a customer's incompetence/death and has reasonable time to act on notice.

Point-of-sale systems

online terminals allow consumers to transfer funds to merchants to pay for purchases using a debit card

If bank does not dishonor the check by the opening of the second banking day following its receipt, the check is considered _____

paid

The Bank-Customer Relationship "Creditor/Debtor Relationship"

relationship created between customer and a bank when the customer makes a cash deposit into a checking account. Customer becomes creditor and bank becomes debtor for the deposited amount.

Usually, a bank issues a provisional credit for on-us items within what period of time

same day

If bank pays stale check in good faith without consulting customer...

the bank has the right to charge the customer's account for the amount of the check

When a drawee bank wrongfully fails to honor a check, who is liable and to whom?

the bank is liable to the customer for damages resulting from its refusal to pay.

Federal Reserve System

the central bank of the United States network of 12 banks located around the country and headed by the Federal Reserve Board of Governors. Acts as a clearinghouse (place where banks exchange checks drawn on each other and settle daily balances)

ordinary care

the observance of reasonable commercial standards, prevailing in the area in which a person is located, with respect to the business in which the person is engaged

Person who wrongfully stops payment on a check will be liable to...

to the payee for the amount of the check

Overdraft protection agreement

when bank expressly agrees with a customer to accept overdrafts; any failure of the bank to honor a check because it would create an overdraft breaches this agreement and is considered a wrongful dishonor.

Cashier's Check

When the bank is BOTH DRAWER AND DRAWEE

Payee

person the check is PAYABLE TO