Chapter 4: Payments: Cash and Checks

positive pay

A bank service that pays a business's checks only if they match the check data on an electronic list of issued checks that the business sends to the bank.

on-us check

A check deposited or otherwise negotiated at the bank on which it is drawn

both

A check payable to joint payees requires the endorsement of ______ payees.

drawer, payee, drawee

A negotiable instrument involves what three parties?

payee

A person to whom a check is written

good faith

A phrase that means the holder has acted honestly and fairly when accepting the check and believed the check was not legally defective in any way

notary public

A public official authorized to attest to the authenticity of signatures.

endorsement

A signature or stamp on the back of a check transferring ownership

restrictive endorsement

An endorsement restricting further transfer of a check's ownership; "For deposit only"

cash letter

An interbank electronic or paper transmittal form, resembling a deposit slip, used to accompany cash items sent from one bank to another.

stop payment

An order by a depositor to the bank to not pay a previously issued check or item.

holder

Any person in the possession of a negotiable instrument and who is entitled to receive payment of the instrument

one billion

By how many have the number of checks declined from 2009 to 2012?

7, 10

Every ____ to _____ years the design of U.S. currency is changed to protect against counterfeiting.

U.S. Treasury

Federal Reserve Banks destroy mutilated currency on behalf of whom?

face amounts, weight

Federal Reserve Banks value notes by their ___ ______ and coins by _______.

cash

Money in the form of bills or coins

without notice

Phrases that means the holder takes the check without notice of any defect, defense, or claim against the payment of the check

True

T or F; Individual states can decided whether to adopt the Uniform Commercial Code.

True

T or F; Mutilated coins are redeemed only through the U.S. Mint facility in Philadelphia, Pennsylvania

True

T or F; a bank that wrongly dishonors a check could be liable to the payee for both the amount of the check and any consequential damages incurred as a result of failing to pay the check.

second

The ____ step in the check payment process is for the payee to accept it.

Depositary Bank

The bank in which a check is first deposited

drawee

The bank that holds the checking account

fixed amount

The unconditional order or promise to pay must be for a ______ _____ of money.

Cashier check

These are issued by a bank and drawn on that bank. The bank is both the drawer and drawee.

Regulation CC

This regulation requires the depository bank to ensure that its endorsement is in the proper location on the check; that the customer does not interfere with the area designated for the depositary's endorsement

U.S. Mint

Uncurrent coins are redeemed by Federal Reserve Banks and returned to whom for disposition?

1. lacks perforations 2. check # is missing, changed, low (100 - 500) 3. additions are written 4. address or bank address are missing 5. erasures or alterations 6. MICR #'s are missing or are shiny 7. VOID appears 8. lacks an authorized signature

What are signs of a fraudulent check?

- insufficient funds - uncollected balance may not leave a sufficient balance in the account to pay the check - stop payment on a check - may be a hold placed on the acct.

What are some examples of checks that might be rejected from the normal posting process and require handling as exception items?

1. payable to bearer or to order 2. unconditional order to pay 3. payable for a specific (fixed) amt of money 4. payable on demand or at a definite date 5. in writing and signed by the drawer

What are the requirements that make a check negotiable?

consists of the signature of the payee or other holder of the instrument; can be used for any purpose and allows flexibility and ease of transfer; risk that it can be deposited or cashed by anyone

What is a blank endorsement?

holder signs the instrument and names the party to whom rights to the instrument are being transferred; used when the endorser is mailing the check to another party

What is a special endorsement?

30 years

What is the life span on coins?

background colors

What is the most noticeable difference in the redesign on bills?

Check 21

What law allows banks that wish to process checks electronically to do so provided that, in the process of collecting checks, if a bank from the electronic image file?

Article 3, Negotiable Instruments, of the Uniform Commercial Code

What law governs the requirements that make a check negotiable?

Regulation J

What regulation covers check collection and returns, cash and noncash items processed through Federal Reserve Banks, and funds transferred through Fedwire?

first

What stage in the check payment process begins when the drawer writes a check on his/her acct. payable to bearer, cash, or an identifiable person?

third

What step in the check payment process is the check cleared for presentment to the drawee?

postdated

When a check is dated in the future.

U.S. Secret Service

Where is suspect currency sent?

drawer - writes the check payee - one to whom check is written drawee - bank that holds the drawer's acct and pays the check

Who are the parties to a check?

altered check

a check on which a material change, such as the dollar amount

Certified check

a customer's check previously accepted by the bank on which it is drawn

check

a draft on an account in a bank that the owner of the account signs to direct the bank to pay a certain amount to the payee

substitute check

a paper reproduction of the original check that for all purposes is the legal equivalent of an original check; it also bears the full MICR line

hold

a restriction on the payment of all or any part of the balance in an account

dual custody

a security technique that uses two or more individual parties operating together to protect sensitive functions, information, or assets

nonsufficient funds

an expression indicating that a check or item drawn against an account exceeds that amount of funds available in the account

money order

an order for payment of a specified sum of money to a designated party

negotiable instrument

an unconditional written promise to pay a specified sum of money upon demand of the holder

special endorsement

another designated person; "Pay to the order of"

counterfeit checks

bogus checks drawn on valid account or valid checks that are presented with fraudulent identification

medium of exchange

currency or other financial instrument use to facilitate transactions between parties

wrongful dishonor

failure of the drawee to pay a properly payable check

Federal Reserve Notes

legal tender is known as ____ ____ ____.

drawer

person writing check

For value

phrase that means something of value have been given in exchange for the check

posting

process of adding deposits to an account balance and subtracting checks and other withdrawals from that balance

dual custody

security technique that uses two or more individual parties operating together to protect sensitive functions, information, or assets. Both parties are equally responsible for physically protecting materials in vulnerable transcactions

truncation

the process of removing the physical paper check from the processing flow

Uniform Commercial Code

the purpose of this is to provide uniformity in how states treat commercial transactions.

blank endorsement

the signature of the payee written exactly as his or her name appears on the front of the check

Teller's check

these are issued by one bank but drawn on another bank. The issuing bank has the same obligation for these checks as for cashier's checks.

certified checks

these checks are accepted by the bank on which it is drawn. They are also liabilities of the bank

cashier's check

these checks are issued by and drawn on the bank; bank is both the drawer and drawee

teller's check

these checks are like cashier's checks but issued by one bank and drawn on another

traveler's check

these checks function as cash because they are payable on demand to the payee; these do not require the holder to present it to the bank on which it was drawn for payment

check kiting

this begins with a criminal opening several checking accounts in different banks

traveler's check

this check is drawn on a bank and is payable on demand to the payee

closed account fraud

this happens when one or more checks being written against an account when it is closed; aka paperhanging

Magnetic Ink Character Recognition (MICR)

this is covered by the certified check account number or mutilated so it will not pass through the customer's account

Article 4 of UCC

under the ___ _____ of ______, the bank automatically becomes a holder of an unendorsed instrument when it is accepted for deposit to the account of the payee.

antedated

when a check is dated prior to written