Deck 25: Checks, the Banking System, and E-Money

Question 1

When a drawer gives an incomplete check to a payee,and the payee completes the check contrary to the instructions of the drawer,if the bank pays the check according to the unauthorized terms,the drawer is generally liable for payment of the check as completed.

Answer 1

True

Question 2

As a holder,the payee of a check can either demand payment or indorse the check to another person.

Answer 2

True

Question 3

The drawee bank is not obligated to certify a check.

Answer 3

True

Question 4

Notifying a bank within 2 days of discovering a lost debit card limits liability to $50.

Question 5

With a certified check,the certification expires when the check becomes stale.

Question 6

Bank deposits and collections are covered under Article 3 of the Uniform Commercial Code.

Question 7

The Electronic Fund Transfer Act regulates consumer electronic funds transfers.

Question 8

The person to whom the check is indorsed is the indorsee.

Question 9

If the drawee's bank certifies a check,the drawer is discharged from liability on the check.

Question 10

Under the most recent version of the UCC,banks are liable for any damages caused by paying any postdated check prior to its date.

Question 11

The payee is the bank on which the check is drawn.

Question 12

When a customer makes a deposit into the bank,the customer is the debtor and the bank is the creditor.

Question 13

A payee has the right to demand payment of the check.

Question 14

The issuing bank serves as both the drawer and drawee of a cashier's check.

Question 15

Checks that have more than one indorser have no validity.

Question 16

An oral stop-payment order is effective for only 7 days.

Question 17

The major purpose of certified cashier's checks is to make the bank primarily liable,so third parties will be more willing to accept the checks.

Question 18

Once a check becomes stale,the bank is no longer obligated to pay it.

Question 19

The drawee is the customer who maintains the checking account.

Question 20

Electronic Funds Transfers are covered under Article 4A of the Uniform Commercial Code.

Question 21

A banking day is any day that the particular bank is open and offering any of its services to the public.

Question 22

Which of the following is not a party to a check?

A) drawer
B) drawee
C) indorsee
D) payee

Question 23

Banks must credit all customers' deposits to their accounts on the same day that the deposits are received.

Question 24

A check that has been outstanding for more than 1 month is considered stale.

Question 25

What type of relationship is created when a customer makes a deposit into her account at a bank?

A) principal-agent
B) trustee-beneficiary
C) donor-donee
D) creditor-debtor

Question 26

A postdated check is one in which the buyer fills in the date on the check after he or she has written to whom the check is payable to.

Question 27

A principal-agent relationship is created between a customer and a bank:

A) only if the customer deposits a check that the bank must collect for the customer
B) any time the customer deposits an amount into the customer's checking account
C) only when the customer writes a check against her account
D) if the customer deposits a check that the bank must collect for the customer or if the customer writes a check against her account

Question 28

An overdraft is an amount of money a drawer owes a bank after it has paid a check despite insufficient funds in the drawer's account.

Question 29

What options does a payee have who is holding a check payable to her?

A) She must seek payment directly from the drawee bank.
B) She must seek payment on the check,either directly from the drawee bank or by depositing the check in her account at her own bank.
C) She may seek payment from the drawee bank,seek payment by depositing the check in her account at her own bank,or she may indorse the check to another person,so long as the indorsement has been approved by the drawer.
D) She may seek payment from the drawee bank,seek payment by depositing the check in her account at her own bank,or she may indorse the check to another person,so long as the indorsement has been approved by the drawee.
E) She may seek payment from the drawee bank,seek payment by depositing the check in her account at her own bank,or she may indorse the check to another person,and this indorsement does not need the approval of the drawer or drawee.

Question 30

Which of the following is correct about the Uniform Commercial Code?

A) Article 3 covers negotiable instruments; Article 4 covers bank deposits and collections.
B) Article 2 covers negotiable instruments as well as bank deposits and collections.
C) Article 4 and 4A are the only articles that affect the banking system.
D) It does not apply to the banking collection and deposit process because negotiable instruments are not considered "goods."

Question 31

An oral stop-payment order is effective for 6 months and may be renewed orally for an additional 6 months.

Question 32

If a bank pays a check with a forged drawer's signature,the bank must recredit the drawer's account,so the loss usually falls on the bank.

Question 33

If a bank does not honor funds when there is a sufficient amount of funds in a drawer's account to pay a properly payable check,it is liable for wrongful dishonor.

Question 34

Banks cannot charge interest on the overdrafts of its customers.

Question 35

When a bank wrongfully dishonors a check,both the drawer and the payee can recover reasonable damages from the bank.

Question 36

A check where the drawer and payee have accounts at different banks is known as an "on them" item.

Question 37

The drawer's bank is also known as the payor bank.

Question 38

When the amount of a check has been raised to a higher amount than it was originally for,the drawer is generally liable only for the original amount of the check.

Question 39

When a check is incomplete,the UCC places the risk of loss due to incompleteness on the drawer.

Question 40

A bank is not permitted to pay a check where sufficient funds are not in the customer's account unless prior arrangements,such as an overdraft protection line of credit,have been made.

Question 41

When the payee of a check indorses a check to another person (the indorsee),what is true about the indorsee?

A) The indorsee must get the consent of the drawer to further transfer the check.
B) In order to collect on the check,the indorsee must present the check for payment at the drawee bank.
C) The indorsee cannot indorse the check to another indorsee.
D) The indorsee becomes a holder who can either demand payment or indorse the check to yet another indorsee.
E) The indorsee must join with the payee of the check when seeking payment.

Question 42

The legal effect of a stale check is which of the following?

A) The drawee bank cannot pay it.
B) The drawer is no longer liable on it.
C) The bank is not under an obligation to pay it.
D) The payee must get the drawer to redate it.

Question 43

In order for the holder of a debit card to be liable for no more than $50 of unauthorized use,what must the cardholder do?

A) Nothing,because debit cardholders' liability for unauthorized use is always limited to a maximum of $50.
B) Notify the issuer bank within 2 days of learning of the loss or theft.
C) Close the related checking account within 2 days of learning of the loss or theft.
D) Notify the issuer bank within 60 days of learning of the loss or theft.
E) Notify the issuer bank and close the related checking account within 2 days of learning of the loss or theft.

Question 44

A stale check is a check that:

A) has been dishonored by the bank
B) has been indorsed too many times
C) is postdated
D) has been outstanding for more than 6 months
E) is over 1 year old

Question 45

Stop-payment orders:

A) must be in writing in order to be effective
B) may be oral,but are effective only for 14 days unless confirmed in writing within the 14-day period,in which case they will be effective for 6 months
C) are effective as long as the account remains open if the order is in writing
D) are effective for 6 months whether oral or in writing

Question 46

Which of the following is true about debit cards?

A) They are a source of credit similar to credit cards.
B) There is usually a 2-business-day float period when they are used.
C) They generally carry a fixed credit limit similar to credit cards.
D) They result in an immediate withdrawal from the user's checking account.

Question 47

Who can certify a check?

A) the drawee
B) the drawer
C) the payee
D) the payee and the drawer if both agree
E) the drawee,the payee,or the drawer

Question 48

Which of the following statements is not true if a check is certified by a bank?

A) The refusal of the bank to certify the check is a type of dishonor.
B) The drawer is not liable if the drawer has the check certified.
C) The drawer is not liable if a holder has the check certified.
D) All persons who indorsed the check before certification are discharged by certification.
E) The bank must indicate on the face of the check that the check is certified.

Question 49

The main reason that someone would use a cashier's check to make a payment rather than a check drawn on that person's own account is that:

A) using a cashier's check will cost less
B) the person will obtain a longer float time with the cashier's check
C) payees are often more willing to accept a cashier's check
D) cashier's checks can be indorsed to third parties

Question 50

Which of the following statements is not true regarding Electronic Funds Transfer Systems (EFTS)?

A) EFTS eliminates "float."
B) Congress and the Federal Reserve Board have enacted legislation to protect EFTS users.
C) A customer has unlimited liability for the unauthorized use of a lost or stolen EFTS debit card.
D) A bank is liable for a wrongful dishonor if it fails to make an EFTS payment when funds are available.
E) One major advantage to EFTS is that they are "online" so the transactions take effect immediately.

Question 51

If a bank wrongfully dishonors a check,then it is:

A) liable to the drawer for damages
B) liable to the payee or holder for damages
C) liable to the drawee for damages
D) A and C only
E) A and B only

Question 52

When a drawee bank is presented with a check drawn on a customer's account in which there are not sufficient funds to pay the check,the bank:

A) must pay the check if the customer is an established customer
B) is not permitted to pay the check
C) must notify the drawer prior to deciding whether or not to pay the check
D) may choose whether to pay the check,but cannot charge interest on the overdraft unless the customer previously agreed to the payment of interest in the event of an overdraft
E) may choose whether to pay the check,and can charge interest on the overdraft in all circumstances

Question 53

When a check is certified,which of the following occurs?

A) The drawer agrees that the check will be paid.
B) The drawer becomes liable to pay the check if the bank does not honor it.
C) An indorser certifies to an indorsee that the check will be paid.
D) The drawee agrees in advance that it will accept a check when it is presented.
E) The ability to transfer the check by indorsement is terminated.

Question 54

What steps must a drawer take in order to make a bank liable for paying a postdated check?

A) The drawer must write the check with a date at some point in the future.
B) The drawer must notify the drawee bank about the postdated check with a reasonably certain description of the check.
C) The drawer must obtain written agreement of the payee to not attempt to deposit or cash the check until on or after the date of the check.
D) The actions in choices A and B are both required.
E) The actions in choices A,B,and C are all required.

Question 55

When a drawer makes out an incomplete check,which of the following is true?

A) The bank is usually liable for paying the check if it was completed in an unauthorized manner.
B) The bank is not permitted to pay the check.
C) The drawer generally will suffer the risk that the check is improperly completed unless the bank has notice that the completion was improper.
D) The drawer is protected whenever a completion is unauthorized.

Question 56

When a check is presented for payment after certification at the certifying bank,and the check has been altered to reflect a higher amount,the bank must pay:

A) the higher amount in all cases
B) only the original amount in all cases
C) the higher amount if it is an "on us" check,otherwise only the lower amount
D) the higher amount,if the alteration was done by the payee of the check,but only the lower amount if the alteration was done by someone else,such as an indorsee
E) the higher amount if the alteration was done before certification and only the lower amount if the alteration was done after certification

Question 57

Which of the following is true of a stop-payment order issue to a bank?

A) It is valid for 10 days if given orally.
B) It is valid for 1 year if given in writing.
C) A bank that pays a check in violation of a valid stop-payment order is liable to the drawer only if the drawer is damaged by this payment.
D) A holder or indorser may stop payment on a check.

Question 58

Which of the following is a characteristic of bank checks that makes payees often more willing to accept a bank check than to accept a personal check?

A) The bank is solely or primarily responsible for payment.
B) They are usually written for large amounts.
C) They cannot be indorsed to other parties.
D) The payee is required to accept them as legal tender in most situations.

Question 59

When a bank has wrongfully dishonored a check,the payee can:

A) sue the bank for recovery of the check amount plus damages
B) sue the drawer for recovery of the check amount plus damages
C) sue the drawer or the bank for recovery of the check amount plus damages
D) sue either the drawer or the bank for recovery of the check amount only
E) sue the drawer for recovery of the check amount only

Question 60

In connection with a checking account at a bank,what is an overdraft?

A) It is a check written that the bank does not pay due to insufficient funds in the account.
B) It is a negative balance caused by a bank paying a check when there are insufficient funds.
C) It is a postdated check for a larger amount than the drawer's checking account balance.
D) It is any kind of loan at a bank where a customer also has a checking account.
E) It is a deposit by a customer that is later returned because of insufficient funds.

Question 61

In January of 2001,Fred had a cocktail party for his coworkers.The next day,after cleaning up,Fred noticed that a check had been stolen from his checkbook.Fred immediately called his bank and issued a stop-payment order on the check.One week later,the check was received by the bank and the bank paid it.Fred's signature was forged on the check.Fred never followed his oral stop-payment order with a written stop payment order.Because Fred was notoriously sloppy with his personal financial affairs,Fred did not notice that the bank had paid the check until he was preparing his income tax return in April of 2002.Can Fred recover from the bank?

A) Yes,because the bank paid the check contrary to a valid stop-payment order.
B) Yes,because the indorsement on the check was forged.
C) No,because he did not execute a written stop-payment order to follow up his oral order.
D) No,because the fact that the check was stolen was not the bank's fault.
E) No,because too much time had passed from when Fred had the information about the bank having paid the check to notify the bank.

Question 62

Which of the following is true about provisional credits?

A) Once credit has been given to a customer,it cannot be taken away.
B) If the bank allows a customer to withdraw amounts that have been granted provisionally,the credits for those amounts cannot be reversed.
C) A bank can reverse credits up until there has been final settlement of an item,and if the customer does not then have the funds in his account to cover the reversal of the credit,the bank can sue the customer for the difference.
D) A bank can reverse credits up until there has been final settlement of an item,and if the customer does not then have the funds in his account to cover the reversal of the credit,the bank must bear the loss for the difference.

Question 63

If a party presents a check containing a forged signature to a bank for payment that the bank pays,from whom can the bank collect?

A) the forger only
B) the forger or the drawer
C) the forger or the party who presented the check
D) the forger or the party who presented the check,but only if the party presenting the check had knowledge that the signature was not genuine
E) the forger and any person who has been a holder

Question 64

Why does the law generally place the risk of forgery on the payor bank,yet place the risk of unauthorized completion on the drawer? What factors would justify a difference in liability of the bank? What factors would justify a difference in liability of the drawer?

Question 65

Barry writes a check to Larry,but before Barry delivers it to Larry,Barry loses it through his own negligence.He then calls his bank and orally places a stop-payment order.Ten days later,the bank pays the check,which was forged.Barry intended to send a follow-up,written stop-payment order,but forgot.Barry learns three weeks later that the check had been paid.In this situation:

A) the bank must credit Barry's account because it did not follow a valid stop-payment order
B) Barry suffers the loss because his negligence led to the forgery
C) Barry suffers the loss because he never sent a written stop-payment order
D) Barry suffers the loss,but the bank must try to recover from the forger

Question 66

Deferred posting refers to:

A) the ability of a bank to reverse credits to a customer's account if a deposited check is later dishonored
B) the ability of a bank to directly credit "on us" items
C) the use of the Federal Reserve System for processing checks
D) the ability of a bank to treat transactions occurring after a stated time of day as if they occur on the next banking day

Question 67

Which of the following is not true regarding a drawer's duty to discover and report alterations and forgeries?

A) If there is a series of forgeries,the drawer's failure to discover and report these to the bank could relieve the bank of some liability.
B) A drawer must report a forgery or alteration within 6 months or the bank is discharged.
C) The bank is not always liable for paying a check over a forged signature.
D) The statutory time is 30 days to report a series of forgeries.

Question 68

Which of the following is true?

A) All banks must process all checks through the Federal Reserve System.
B) All banks must process all "on them" checks through the Federal Reserve System.
C) The Federal Reserve System includes at least one regional bank in each state.
D) The Federal Reserve System is not permitted to charge a fee for its processing services.
E) Many banks use private clearinghouses instead of the Federal Reserve System to process checks.

Question 69

Which of the following describes a bank's duty to ensure that a drawer's signature is genuine?

A) The bank is not under a duty to determine the authenticity of drawers' signatures.
B) The bank has a duty to discover forgeries only if they are reasonably obvious.
C) The bank has a duty to discover forgeries,and is liable if it pays an instrument on which the drawer's signature was forged.
D) The bank has a duty to discover forgeries,but only if the drawer has given notice of the likelihood of a forgery,such as if the drawer has lost some blank checks.

Question 70

The following are terms used to describe banks in the collection system except:

A) the collecting bank
B) the depository bank
C) the intermediary bank
D) the maker bank
E) the payor bank

Question 71

Paula writes out a check for $30 when she has only $15 in her account.What can her bank do?

A) It can refuse to pay the check.
B) It can pay the check even if it results in an overdraft.
C) It can pay the check and then bill Paula $15 for the overdraft plus a $25 overdraft fee and interest on everything until it is all paid.
D) The bank can do any of the above.

Question 72

The deadline for a bank to dishonor an item received on a particular day is:

A) midnight of the next banking day,except for "on us" items,for which the deadline is midnight of the same banking day
B) midnight of the next banking day,except for "on us" items,for which the deadline is midnight of the second banking day
C) midnight of the next banking day,except for "on us" items,for which the deadline is the open of business on the second banking day
D) midnight of the next banking day,except for "on them" items,for which the deadline is midnight of the second banking day

Question 73

Banks are required to file a Currency Transaction Report with the Internal Revenue Service for:

A) all transactions involving cash or certain types of checks of more than $10,000
B) all transactions involving ordinary checks of $10,000 or more
C) all transactions involving cash or certain types of checks of more than $1,000
D) any suspected criminal activity involving funds of any amount
E) A and D

Question 74

With an "on us" item,which banks are the same?

A) the depository and the payor
B) the payee and intermediary
C) the collecting and intermediary
D) the payee and depository

Question 75

Drew makes out a check payable to Bill.Bill alters the amount of the check from $10 to $100,and cashes the check at the local grocery store.The grocery store later cashes the check at the drawee bank,which deducts $100 from Drew's account.Drew learns of the alteration and complains to the bank.Which is true in this situation?

A) The bank must recredit Drew's account for $90.
B) The bank can collect from the grocery store for breach of presentment warranties.
C) The grocery store can collect from Bill for breach of presentment warranties.
D) A,B,and C are true.
E) A and C only are true.

Question 76

Kenny has a checking account at Local Bank.Kenny writes a check to Grocery Store.What is the relationship of the parties?

A) Kenny is the drawer; Local Bank is the drawee; Grocery Store is the payee.
B) Kenny is the drawee; Local Bank is the drawer; Grocery Store is the payee.
C) Kenny is the payee; Local Bank is the drawee; Grocery Store is the drawer.
D) Kenny is the payee; Local Bank is the drawer; Grocery Store is the drawee.

Question 77

Mark sold his car to Mary.Mary paid with a certified check.The check was made out for $18,000,the agreed price for the car.After they had exchanged paperwork and closed the deal on the car,Mark noticed that the bank had certified the check for $10,000 rather than the $18,000 amount of the check.Mark then altered the check to be for $28,000.How much must the bank pay on the check?

Question 78

Why are there such rigid and short deadlines for banks to decide whether or not to pay items? Does the midnight deadline force banks into making payment decisions before they have adequate information?

Question 79

Assuming the bank has proper notice,which of the following situations would not allow the bank to rightfully dishonor a check?

A) the drawer's death or incompetence
B) the check was drawn 4 months ago
C) a court order,freezing the account
D) a stop payment order
E) exercise of a right of setoff

Question 80

When a bank pays a check that has been materially altered to a higher amount,the bank can:

A) not charge the depositor's account
B) charge the depositor's account for the original amount of the check,but cannot recover the additional amount from anyone
C) charge the depositor's account for the original amount of the check,and recover the additional amount only from the person who altered the check
D) charge the depositor's account for the original amount of the check,and recover the additional amount from the person who presented the check for payment,even if that person did not know the check was altered
E) charge the depositor's account for the original amount of the check,and recover the additional amount from the person who presented the check for payment,but only if that person knew that the check was altered