Business Law II - Chapter 28: Banking in the Digital Age

A ___________ __________ is a check that has been accepted by the bank (the drawee) on which it is drawn (by the drawer).

*Certified Check* These even more protected than traveler's checks as the bank is taking this check as a liability for it to be paid.

A ___________ is a special type of draft that is drawn on a bank, ordering the bank to pay a fixed amount of money on demand.

*Check* Note: A check is a demand instrument that is made out to a specific person.

An __________ ________ ____________ is a transfer of funds made through the use of electronic terminal, smart-phone, tablet, computer, or telephone.

*Electronic Fund Transfer (ETF)* Note: These substitute checks and replace physical checks.

T/F A bank's refusal to certify a check is a dishonor of the check.

*FALSE!* A bank CAN refuse to certify the certified check.

T/F A customer's mental incompetence or death automatically revokes a bank's authority to accept, pay, or collect an item.

*FALSE!* Only once the bank is notified of the customer's incompetence or death and has a reasonable time to act, then the bank's authority becomes effective. Note: Banks can pay/certify check's of a customer 10 days after KNOWING their death without facing a liability.

T/F A check can ALWAYS be altered between the time it is drawn and the time it reaches the drawee.

*FALSE* When a payee insists on the payment by an instrument that has already been accepted by the drawee, a check cannot be altered. Examples: Cashier's Check, Traveler's Check, and Certified Check These checks provide more protection in business transactions as well as assist in risk management where businesses are less likely to not have fund available.

How long are Stale Checks usually good for?

*Six Months* Note: When a bank receives a stale check after 6 months, they have they option whether to pay the check or not.

A ____________ ___________ is an order by a customer to her or his bank not to pay a certain check.

*Stop-Order Payment* Note: The customer (drawer) must have valid legal grounds for issuing a stop-payment order. Otherwise, the holder can sue the customer for payment.

T/F A forged signature on a check has no legal effect as the signature of a customer-drawer.

*TRUE*

T/F If there is not a valid reason to stop-payment of a check, then it is a crime.

*TRUE*

T/F The date on the check has no effect on when it can or cannot be cashed.

*TRUE* Dates on checks do not matter unless the issuer of the check contacts the bank ahead of time.

T/F A check can be altered between the time it is drawn and the time it reaches the drawee.

*TRUE* Example: The account on which the check is drawn may no longer have sufficient funds to pay the checks.

T/F If a bank wrongfully dishonors a cashier's check, a holder can recover from the bank all expenses incurred, interest, and consequential damages.

*TRUE* The issuing bank must honor its cashier's checks when they are presented for payment. Cashier's Checks validate the funds.

How many parties are involved in a Cashier's Check?

*TWO* (The bank and the payee) The bank serves the role as the drawer and the drawee. In other words, the bank draws a check on itself.

A ____________ __________ is an instrument that is payable on demand, drawn on or payable at a financial institution issuing institution (such as a bank).

*Traveler's Check* These checks are protected

What are some types of ETFs?

1) Automated teller machines (ATMs) 2) Point-of-sale systems 3) Direct deposits and withdrawals 4) Online payment systems

What are the banks two options when there are insufficient funds available to cover a check?

1) The bank can dishonor a check for insufficient funds, and has no liability to the customer. 2) Create an *Overdraft* by paying the check and charging the customer's account.

What are the three parties involved in a check?

1. *Drawer*: a person who writes a check. 2. *Payee*: person to whom the check is payable. 3. *Drawer*: the bank or financial institution on which the check is drawn.

What does the Federal Reserve System act as?

A clearinghouse Definition: a place where banks exchange checks drawn on each other and settle daily balances.

When is the issuing institution obligated to accept and pay traveler's checks?

According to the check's terms Each check is issued for a fixed amount (such as $20, $50, or $100).

What must a bank do when they pay customer's check bearing forgery?

Banks must recredit the customer's account or be liable to the customer (drawer) for breach of contract. Note: When Customer Negligence substantially contributes to forgery, the bank is NOT obligated to recredit the account.

A promise to that sufficient funds are on deposit and have been set aside to cover the check.

Certification

This is a replacement of currency and coin (physical money) for funds stored on microchips and electronic devices as well as virtual cash in the form of electronic impulses.

Digital Cash and E-money

The __________________ is a network of twelve district banks located around the country and headed by the Federal Reserve Board of Governors.

Federal Reserve System

The Expedited Funds Availability Act (EFAA) and the Regulation CC (the regulation implementing the act) establish when funds from deposited checks must be made available to the customers. What are the rules for the Availability Schedule for Deposited Checks?

How Long Funds are Available: - Local checks - must be available within one business day from the date of deposit. - Nonlocal checks - must be available within no more than 5 business day from the date of deposit.

What has to be established to guarantee that banks will honor checks when insufficient funds are available (by creating overdrafts)?

Overdraft Protection Agreement Note: breaching this agreement as a bank is considered a wrongful dishonor.

Explain what an Overdraft is

Overdrafts honor checks by paying them regardless even when insufficient funds are available, but this negative balance comes with an implied promise to reimburse the bank.

How many times is the purchaser required to sign the traveler's check?

TWICE Once at the time the check is purchased (or when it is given) and again when it is being used. This increases the check's validity.

What is the process of certifying a check?

The bank stamps or writes the words "certified" on the face of the check. Note: The bank now takes full responsibility of the check as the prior indorsers have no longer any obligation.

What are some examples of customer negligence?

When a customer does not take due care and due diligence. - Losing a checkbook and never informing the bank. - Doesn't check their bank statements on a timely basis.