Business Law- Chapter 28- Checks and Banking in Digital Age

Most customers use 3 kinds of online banking services

- Consolidating bills and making payments. - Transferring funds among accounts - Applying for loans and credit cards

Disclosure Requirements for Consumer Fund Transfers

- the bank must provide a monthly statement for every month in the year in whcih there is an EFT - if a customer's debit card is lost or stolen and used without permission the customer shall be required to pay no more than $50 (increases to $500 if not reported to bank within 2 days) - customer must discover any eroor on the monthly statement within 60 days and notify the bank. the bnk then has 10 days to investigate and report its conclusions to the customer.

Other Parties From Whom the Bank Can Recover from Forged Checks

- the person who forged the check (if the person can be found) - also may be able to recover from a party who transferred a check with a forged signature

Violations and Damages (Consumer Fund Transfers)

-unauthorized access to an EFT system is a federal felony and those convicted may be fined up to $10,000 and sentenced to up to 10 years in prison. - if a bank violates the EFTS, a consumer may recover both actual damages and punitive damages of $100 to $1000 - failure to investigate an error in good faith makes the bank liable for treble damages (three times the amount of damages).

3 types of relationships that arise when a customer opens a checking account and deposits funds

1) Creditor-Debtor Relationship 2) Agency 3) Contractual

Debit card

A bank card that automatically deducts the amount of a purchase from the checking account of the cardholder

Cashier's check

A check drawn by a bank on itself.

Certified check

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

Overdraft

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

Check

A draft drawn by a drawer ordering the drawee bank or financial institution to pay a certain amount of money to the holder on demand.

Federal Reserve System

A network that pertains to the U.S. Constitution, acts of Congress, or treaties. A federal Reserve board of Governors. Most banks in the United States have Federal Reserve accounts.

Substitute Check

A paper reproduction of a check that has been copied electronically from the original.

Creditor-Debtor Relationship

A relationship that is created when a customer deposits money into the bank; the customer is the creditor, and the bank is the debtor.

Regulation E

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.

Electronic fund transfer

A transfer of funds with the use of an electronic terminal, a telephone, a computer, or magnetic tape. - consumer fund transfers are guarded by the EFTA -commercial fund transfers are governed by article 4A of the UCC

Types of EFT systems

ATMs, Point-of-sale systems, Direct Deposits and Withdrawals, Internet Payment Systems

Collecting bank

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

Intermediary Bank

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

2 major wire payment systems

Federal Reserve wire transfer network (Fedwire) and the New York Clearing House Interbank Payment Systems (CHIPS).

Digital cash

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

Altered Checks

If a bank fails to detect an alteration, it is liable to its customer for the loss because it did not pay as the customer ordered. - customer negligence can also be applied (unless the bank was also negligent) BANK is entitled to recover the amount of loss unless: 1) the bank is also the drawer, it cannot recover from the presenting party if the party is a holder in due course 2) An HDC who presents a certified check for payment in good faith does not warrant to the check's certified that the check was unaltered before the HDC acquired it.

Stale Checks

In commercial banking, Non-certified checks over 6 months old. Bank has option of whether or not to pay.

E-money

Prepaid funds recorded on a computer or a card.

Smart card

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

Payor Bank

The bank on which a check is drawn.

Depositary bank

The first bank to receive a check for payment.

Interest-Bearing Accounts

Under TISA and Regulation DD, banks must pay interest based on the full balance of a customer's interest bearing account.

Forged Drawers' Signatures

When a bank pays a check on which the drawer's signature is forged, the bank usually suffers the loss. The general rule: A forged signature on a check has no legal effect as the signature of a customer-drawer. The general rule is that the bank must recredit the customer's account when it pays on a forged signature. (why banks require a signature card from each customer who opens a checking account)

Contractual Relationship

When a bank-customer relationship is established, certain contractual rights and duties arise that depend on the nature of the transaction

Customer Negligence

When a customer's negligence substantially contributes to a forgery, the bank normally will not be obligated to recredit the customer's account for the amount of the check. - customers have a duty to promptly examine bank with reasonable care and to report any alterations or forged signatures. - to recover multiple forgeries, the customer must find the first forged check and give to the bank within 30 calendar days of the receipt of the bank statement. - bank customer can escape some of the liability if they can prove the bank was also negligent. - UCC places an absolute time limit on the liability of a bank for paying a check with a customer's forged signature.

Postdated Checks

a check written with a date that will occur in the future

incompetence or death of a customer

a customer's mental incompetence or death does not automatically revoke a bank's authority to accept, pay, or collect an item. - only after the bank is notified of the death and has reasonable time to act on the notice will the banks authority be ineffective

Stop-Payment Orders

a request by a customer to his or her bank to not pay a certain check. - the customer-drawer must have a VALID legal ground for issuing a stop payment order - REASONABLE TIME & MANNER - if bank pays check despite stop order, the bank will be obligated to recredit the customer's account

Clearinghouse

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

Overdrafts

allow a business to spend in excess of the amount in its bank account, up to a predetermined limit. They are the most flexible form of borrowing in the short term. - "Overdraft protection agreement"

traveler's check

an instrument that is payable on demand, drawn on or payable at a financial institution, and designated as a traveler's check - purchaser is required to sign the check at the time it is purchased and again at the time it is used

Availability Schedule for Deposited Checks

local checks: 1 business day from the deposit date nonlocal checks: no more than business 5 days from the deposit date cash, wire: next business day First $100 of any deposit: opening of the next business day after deposit. ATMs: 5 bdays New-customer deposits: within 8 bdays Large deposits: bank may place a hold on the funds and nofity customers of this. Checks: Under the Check Clearing in the 21st Century Act (Check 21), a bank must credit a customer's account as soon as the bank recieves the funds.

Agency

the bank acts as the customer's agent and must pay customer's checks and collect payment for customer when she/he deposits checks.