Deck 27: Bank Deposits, Collections, and Funds Transfers

Question 1

Alvero tries to make a $75 withdrawal from an ATM, but the terminal has run out of cash. The bank is liable to Alvero for damages proximately caused by its failure to make the EFT.

Answer 1

False

Question 2

Goble, the seller, obtains authority from Meigs, the buyer, to debit Meigs's account after Goble ships the goods. Article 4A covers this transaction.

Answer 2

False

Question 3

If a bank receives a check on Tuesday, it must take proper action, such as forwarding or presenting it, by midnight of Wednesday.

Answer 3

True

Question 4

The Check Clearing for the 21st Century Act requires banks to accept checks in electronic form.

Question 5

If a depositor in First Bank takes a check written on Valley Bank to First Bank to deposit, it will not normally be credited to his account until collected from the payor bank.

Question 6

Collecting banks give to a transferee the same basic warranties as those given by other parties who transfer commercial paper, except they also may give encoding warranties.

Question 7

A bank is permitted by statute to remove an original paper check from the check collection process and send a substitute check instead.

Question 8

A bank may pay a check after the death of its customer for ten days following the date of his death unless a person claiming an interest in the account orders the bank to stop making such payments.

Question 9

The relationship between the payor bank and its checking account customer is exclusively governed by statute and leaves no room for contractual modifications.

Question 10

A payor bank is under no obligation to its customer to pay an uncertified check that is more than six months old.

Question 11

Banks like electronic funds transfers because they eliminate the float time that a drawer enjoys on a checking account and the paperwork involved in processing checks.

Question 12

If First Bank receives a check for collection on Friday at 4:30 p.m., it does not have to present the check to the payor bank by midnight Saturday.

Question 13

A provisional credit occurs at the time a depositary bank permits a customer to draw funds against the deposited check.

Question 14

Caryn deposits a check in her bank at 2:30 on Monday. The bank may, under the Code, treat the check as having been deposited on Tuesday for purposes of meeting the midnight deadline rule.

Question 15

If a bank pays on a check even though it has a "stop payment order," the bank is liable to the customer only if the customer can prove a loss because of the payment.

Question 16

Any unauthorized indorsement must be asserted within one year under the UCC's statute of limitations provision.

Question 17

Point-of-sale systems permit customers to charge items to a charge account at a bank.

Question 18

Adjudication of drawer's incompetence will not affect the bank's ability to act with respect to the drawer until the bank knows and has a reasonable opportunity to act on this knowledge.

Question 19

A critical issue in banking law is at what point an item is finally paid.

Question 20

Article 4 of the UCC, entitled "Bank Deposits and Collections" provides the principal rules governing bank collection practices.

Question 21

Congress enacted the Truth in Savings Act which requires all depositary banks to disclose in great detail to consumers the terms and conditions of their deposit accounts.

Question 22

A depositary bank is any bank handling an item for payment.

Question 23

A written stop payment order is effective indefinitely.

Question 24

The Electronic Funds Transfer Act governs electronic transfers between financial institutions, between financial institutions and businesses, and between businesses.

Question 25

D drew a $100 check on ABC Bank payable "to the order of P ." P cashed the check at National Bank. National Bank is an agent of P until the drawee bank pays the check.

Question 26

The Code imposes certain affirmative duties on bank customers and fixes time limits within which they must assert their rights.

Question 27

Under the Competitive Equality Banking Act, a nonlocal check must clear in no more than four intervening business days.

Question 28

ABC Bank sent Joanne, a depositor, her January statement on January 31. Within what length of time after this date will Joanne have to notify ABC bank of any instruments containing alterations or unauthorized signatures included in her January statement?

A) 10 days.
B) A reasonable period of time, not to exceed 30 days.
C) 60 days.
D) Three years.

Question 29

Under Revised Article 4, if a bank pays a postdated instrument prior to its date, it will be a proper debit to the drawer's account, unless the drawer had timely informed the drawee that the check was postdated.

Question 30

Which of the following is true of a collecting bank?

A) A collecting bank is an agent of the owner of an item until settlement becomes final.
B) The relationship between a collecting bank and the owner of an item, once settled, becomes a debtor-creditor relationship.
C) A collecting bank may be a sub-agent of the owner until settlement becomes final.
D) All of these are true.
E) None of these are true.

Question 31

Lane Co. instructs its bank, Second Street Bank, to pay $200,000 to Moffett, Inc., also a customer of Second Street Bank. The bank executes the payment order by crediting Moffett's account with the $200,000 and notifying Moffett that the credit was made and is available. In this case:

A) Lane Co. is the originator; Second Street Bank is both the sender and the intermediary.
B) Lane Co. is both the originator and the sender, and Moffett, Inc. is the beneficiary.
C) the transaction is governed by the EFTA.
D) Lane Co.'s payment order had to be communicated either electronically or in writing.

Question 32

David dies an untimely death in a boating accident two days after writing a check to his landlord. The bank finds out about David's death the day after it happens. When the landlord presents the check to the bank two weeks later, the bank must pay it unless David's heirs object.

Question 33

Doug takes a $500 check drawn by Gail to Gail's drawee bank to cash it. Gail has over $10,000 on deposit in her account. If her bank refuses to pay Doug:

A) Doug can sue the bank and demand payment.
B) if the check is over 30 days old, the bank has a right to refuse payment.
C) the bank has incurred a liability to Gail for its improper refusal to pay the check.
D) All of these.

Question 34

A payor bank is required to dishonor an uncertified check that is more than six months old.

Question 35

An association of banks and other payors whose members settle accounts with each other on a daily basis is a:

A) payor banking group.
B) clearinghouse.
C) provisional reserve.
D) None of these.

Question 36

Sylvia draws a check on ABC Bank payable "to the order of Ann Smith." Ann indorses it and deposits it in her account at First Bank. First Bank is a:

A) drawee bank.
B) payee bank.
C) depositary bank.
D) payor bank.

Question 37

If a drawer files a stop payment order on a check, he is automatically relieved of liability for the obligation.

Question 38

For how long is a written stop payment order valid?

A) One month.
B) Six months.
C) One year.
D) Indefinitely.

Question 39

An oral stop payment order is binding on the drawee bank for 14 calendar days.

Question 40

Barry presents to Wake Bank for deposit in his account a check for $100 made out to him by Richard. Wake Bank provisionally credits Barry's account on Monday. When is payment final?

A) Automatically at the end of the third business day.
B) Midnight Tuesday.
C) When the amount of the check is collected from Richard's bank.
D) When Richard's bank receives the check.

Question 41

A system for electronic funds transfers (EFT) in which machines are located in a merchant's store and are activated by the consumer's identification card and code is:

A) POS.
B) RAM.
C) EFTA.
D) DOS.

Question 42

Which of the following is true about UCC Article 4A?

A) It is designed to overlap coverage of the Electronic Funds Transfer Act.
B) It covers both credit and debit transactions.
C) It covers wholesale funds transfers.
D) It does not allow parties to vary their rights and obligations by agreement.

Question 43

An objective of the Check 21 Act is to:

A) require banks to accept checks in electronic form, thereby reducing paperwork.
B) make the check collection process faster by transferring files digitally.
C) enhance fraud detection.
D) All of these are objectives.
E) Only to make the check collection process faster by transferring files digitally and to enhance fraud detection.

Question 44

If Ben Stewart has a checking account at First Bank:

A) the relationship between Ben and his bank is based primarily on their contractual agreement.
B) First Bank is a creditor and Ben is a debtor.
C) Ben is an agent of First Bank.
D) All of these.

Question 45

On April 6, Ellen sends a check out to a magazine publisher and then discovers she has already paid for the subscription. She calls her bank and orders that the bank not make payment. That order will be good until:

A) April 13.
B) October 6.
C) April 13 if confirmed in writing.
D) October 6 if confirmed in writing.

Question 46

Which of the following is correct with respect to a bank customer's duty to discover and report unauthorized signatures?

A) The customer is required to exercise reasonable care and promptness to examine the bank statement.
B) A customer's duty of examination includes checking the signatures of payees or indorsers.
C) The bank is liable on all items with unauthorized signatures even if these canceled checks were returned to the customer four years prior to the discovery of the alterations.
D) The bank is not required to exercise ordinary care in paying the items.

Question 47

Which of the following is true with regard to the federal Electronic Funds Transfer Act?

A) It is primarily a regulatory statute.
B) It gives the same protections to customers that are found in Article 4.
C) It limits a customer's liability for unauthorized transfers to $50 if the consumer notifies the financial institution within two days after learning of the loss or theft.
D) All of these.

Question 48

If Margie makes out a check for $27.50 when she has only $10 in her account, her bank may:

A) refuse to pay the check.
B) pay the check.
C) bill Margie for $17.50 and a service charge.
D) Any of these are options.

Question 49

Helen deposits a $50 check in her account at First Bank at 4:00 on Friday. The bank is closed on Saturday and Sunday, but opens again on Monday. The midnight deadline for First Bank would be:

A) Midnight Saturday.
B) Midnight Sunday.
C) Midnight Monday.
D) Midnight Tuesday.

Question 50

A payment order for a wholesale funds transfer must:

A) be communicated in writing.
B) contain no condition to payment other than the time of payment.
C) be transmitted by the sender directly to the receiving bank.
D) All of these.

Question 51

A check is drawn on Jones Bank by Tamara and made payable to the order of Chris. Chris indorses it "for deposit only, Acct. 2275, Chris" and gives it to Plainer Bank for deposit. Plainer stamps "pay any bank" on the check along with its indorsement and negotiates it to Stone Bank. Stone Bank simply stamps "Stone Bank" and negotiates it to SmallTown Bank. If SmallTown wants to negotiate it to the electric company to pay its bill, can it?

A) Yes, because the restrictive indorsement only applied to earlier indorsees.
B) Yes, because the bank was not responsible for checking more than one indorsement.
C) No, because an item restrictively indorsed with words such as "pay any bank" is locked into the bank collection system.
D) No, because the bank must issue its own check for its own bills.

Question 52

Which warranties does a collecting bank give?

A) Warranty of no alteration only.
B) Entitlement to enforce the item, genuine signatures, no material alteration, no defense good against it, and no knowledge of insolvency of the maker or acceptor or drawer of an unaccepted draft.
C) Only good title and genuine signatures.
D) A collecting bank does not give any warranties.

Question 53

If you lose your wallet along with your ATM card, your liability is

A) unlimited unless you notify the bank within 30 days.
B) limited to $200 if you notify the bank within two days.
C) limited to $50 if you notify the bank within two days.
D) limited to $500 if you notify the bank within 60 days.

Question 54

Sue deposits in her account at First Bank a $50 check drawn on Valley Bank. First Bank transfers the check to Second Bank, which in turn forwards it to Valley Bank, which pays the item. Valley Bank is the:

A) payor bank.
B) drawee bank.
C) collecting bank.
D) The payor bank and also the drawee bank.

Question 55

A check drawn on a bank is an order to pay a sum of money and an authorization to charge the amount to the drawer's account. The drawer may countermand this order by which of the following?

A) A canceled check.
B) A stop payment order.
C) A banker's acceptance.
D) A time draft.

Question 56

When a payor bank gets an item payable from a customer's account with insufficient funds, the bank may:

A) pay the item and charge it to the customer's account even though an overdraft is created.
B) dishonor the item and return it.
C) Either may happen.
D) Neither is allowed.

Question 57

A preauthorized electronic transfer from a consumer's account:

A) may be orally authorized at the time the transfer is to be made.
B) must be authorized in writing in advance of the time the transfer is to be made.
C) may be stopped only by written notice to the financial institution at least five business days before the scheduled date of transfer.
D) is limited to an amount of $500 or less.

Question 58

The Competitive Equality Banking Act:

A) allowed intermediary banks to become clearinghouses.
B) includes a requirement that collecting banks give provisional credit to its subagents.
C) has expedited the availability of funds.
D) None of these.

Question 59

The duty of care exercised by a collecting bank in handling an item transferred to it for collection does not include:

A) taking care in presenting the item.
B) that it must act within a reasonable time after receipt of the bank item.
C) taking care in routing.
D) taking care in selecting intermediary banks.
E) All of these are duties of care of collecting banks.

Question 60

Which of the following is NOT a duty of a collecting bank in the collection process?

A) Duty of care.
B) Duty to act in a timely manner.
C) Duty to honor a valid stop payment order.
D) Duty to honor a restrictive endorsement.

Question 61

Mary receives her monthly bank statement on December 30th. She looks at it quickly, then sets it aside. Three days later, she examines it again and discovers a forged check. What must she do to avoid responsibility for the check?

Question 62

Emma calls her bank to issue an oral stop payment order on a check on March 1st. She then leaves town for two weeks to visit her mother. When she returns, she goes to the bank to sign a written stop payment order, but finds the bank has already paid the check. What recourse does she have? Explain.

Question 63

What is electronic funds transfer? Why do banks like it? What provisions are in the law to protect the customer who uses electronic funds transfer?

Question 64

What is the effect of a payor bank's dishonor of a check?

A) It returns the check.
B) The provisional credits must be reversed.
C) The customer who deposited the item for collection must cover the item and seek recovery from the drawer or indorsers.
D) All of these will occur.

Question 65

Theresa has just started working for Citizens Bank as a teller. A man comes into the bank with a $100 check that is 8 months old. She goes to the manager to ask whether she should pay it. If you were the manager, what would you advise her? Explain.

Question 66

What are a payor bank's rights to subrogation upon an improper payment of an instrument?