Deck 30: Checks and Funds Transfers

Question 1

Checks that involve amounts of more than $5,000 generally trigger the bank reporting requirements under the USA Patriot Act.

Answer 1

False

Question 2

Although a drawer has stopped payment on a check, the drawer still may be held liable on the check.

Answer 2

True

Question 3

An overdraft is treated as a loan from the bank to the customer, and the customer must repay that amount to the bank.

Answer 3

True

Question 4

A written stop payment order is binding on the bank for 90 days.

Question 5

The delivery of a check is an assignment of money on deposit, and the drawee bank is required to pay the holder the amount of the check.

Question 6

A tender occurs when the holder of a check or other consumer transaction authorization demands payment.

Question 7

A bank is not required to pay a check presented more than three months after its date.

Question 8

In theory, a valid check can be written on a cocktail napkin.

Question 9

A drawer may be held criminally liable if a check or draft is dishonored.

Question 10

An "encryption" warranty is a warranty made by any party who encodes electronic information on an instrument.

Question 11

Most states provide that if a dishonored check is not made good within a stated period of time, it will be presumed that the check was originally issued with the intent to defraud.

Question 12

The drawer of a check is always a bank.

Question 13

The standard form of a check is automatically payable on demand.

Question 14

To be effective, checks must be executed on forms that are printed expressly for that purpose and issued by a bank or other financial institution.

Question 15

The fact that a stop payment on a check has been issued renders the check nonnegotiable.

Question 16

A check is a particular kind of draft.

Question 17

A notice of dishonor may be oral, written or electronic.

Question 18

A buyer may stop payment on a certified check issued to a seller if the goods are defective when received.

Question 19

A check may be certified by a bank upon the request of the drawer or the holder.

Question 20

When a bank certifies a check, the amount involved in the certification will be debited in the depositor's account until payment of the certified check.

Question 21

Postdating a check changes the check from a demand draft to a time draft.

Question 22

An oral stop payment order is binding on the bank for __________ days unless confirmed in writing within that time.

A) five (5)
B) seven (7)
C) fourteen (14)
D) thirty (30)

Question 23

Ordinarily, the drawee bank is liable to the drawer when it pays a check on which the drawer's signature has been forged.

Question 24

All of the following are correct concerning stop payment orders, except: ______.

A) a stop payment order may be issued if a payee has failed to perform under a contract.
B) a stop payment order does not prevent a holder in due course from demanding payment.
C) a stop payment order is invalid for some forms of checks.
D) a stop payment order must be in writing to be effective.

Question 25

A bank will not be liable for payment of a check on which the drawer's signature has been forged if:

A) the bank could not have detected the forgery through a reasonable investigation.
B) there are more than two prior indorsers of the check.
C) the bank gives a cashier's check in payment of the depositor's check.
D) the drawer's negligence contributed substantially to the forging of the signature.

Question 26

Harvey issued a check to AgribizCo and, after mailing the check, suffered a heart attack and died. In the regular course of business, the bank paid the check when presented by AgribizCo for payment, despite the fact that the bank had received notice fourteen (14) days earlier of Harvey's death. In terms of the bank's payment of the check

A) the bank is not liable because the payment was made within 20 days of the notification of the death.
B) the bank is potentially liable to Harvey's estate.
C) the bank is not liable unless the Harvey's executor posted an indemnity bond.
D) the bank's authority to act for Harvey ended on his death, regardless of whether the bank had been notified of Harvey's death.

Question 27

Which of the following statements describes a check?

A) The drawer is always a bank.
B) The maker is always a bank.
C) A check is generally payable on demand.
D) A check is a particular kind of note.

Question 28

Certification of a check at the request of a holder:

A) releases all prior secondary parties.
B) releases the drawer but not prior indorsers.
C) releases prior indorsers, but not the drawer.
D) does not release all prior secondary parties.

Question 29

A consumer who notifies the issuer of an EFT card within two (2) days after learning of a loss or theft of the card can be held to a maximum liability of $500 for unauthorized use of the card; failure to notify within this time will increase the consumer's liability for losses to a maximum of $5,000.

Question 30

A written stop payment order or confirmation is effective for:

A) fourteen (14) days.
B) thirty (30) days.
C) six (6) months.
D) one (1) year.

Question 31

Morris issued a check to Al in payment of a debt. There were sufficient funds in Morris' account to cover the check when it was presented for payment. However, due to an error, the bank dishonored the check. Which of the following parties is/are potentially liable to the holder?

A) the drawee bank only
B) Morris and the drawee bank
C) Morris only
D) the drawee bank and any collecting bank

Question 32

A forged endorsement must be reported within one year of the time that the bank statement is received.

Question 33

The Electronic Fund Transfers Act (EFTA) covers all transactions, including those that originated by commercial paper.

Question 34

A bank must be given a reasonable amount of time to put a stop payment order into effect.

Question 35

A debit transaction occurs when a person making a payment requests such payment be made to the beneficiary's bank.

Question 36

In a complex funds transfer, an intermediary bank may receive and transmit the payment order.

Question 37

The "preclusion rule" prevents or precludes the customer from forging a signature and then making a claim against the bank.

Question 38

All of the following statements is incorrect concerning stale checks except: ______.

A) A check is stale when dated more than six (6) months before presentation to the bank.
B) Banks are required to pay stale checks unless a stop payment order has been issued.
C) Banks can pay in good faith after three (3) months.
D) Stale checks do not have to be verified with the bank's customer.

Question 39

A bank always is liable to the depositor on a counterfeit check that the bank has paid.

Question 40

Banks are liable for losses on counterfeit checks in all the following scenarios except:

A) whether or not the bank acted reasonably in its processing systems in clearing the checks.
B) whether or not the bank complied with time requirements for customers regarding the checks.
C) whether or not the bank made an unreasonable mistake in paying the check.
D) whether or not presentment was valid.

Question 41

A forged indorsement must be reported within:

A) forty (40) days.
B) six (6) months.
C) one (1) year.
D) three (3) years.

Question 42

Sondra realized on Tuesday that she had dropped her bank EFT card after using it at an automatic teller machine. She telephoned the bank on the following Monday to notify it of the loss. By that time, someone had used the card to withdraw $800 from Sondra's account. The bank said it would cover $300 of that amount. Sondra sued for the full amount, claiming that she had exercised reasonable care in reporting the loss, especially because the card was lost on bank premises. Will she be able to recover the full $800?

Question 43

The EFTA is concerned with the:

A) elimination of foreign terrorists
B) eradication of foreign tribunals
C) electronic transfers of funds
D) eleemosynary, or charitable, transfers of funds

Question 44

Funds transfers made by businesses are governed by __________ regulations.

A) UCC
B) Federal Reserve
C) UCC and Federal Reserve
D) neither UCC nor Federal Reserve

Question 45

A consumer who notifies the issuer of an EFT card within two (2) days after learning of a loss or theft of the card is limited to a maximum liability of:

A) $500.
B) $50.
C) There is no liability limitation in this situation.
D) There is no liability in this situation.

Question 46

A thief stole Art's checkbook and forged Art's name as drawer of a check. The drawee paid the check in good faith and sent it to Art with the monthly statement on January 3, 2013. The thief forged other checks during February and March of 2013, which the drawee in good faith paid. All paid checks were sent to Art with monthly statements. On May 25, 2014, Art discovered all of the forgeries and notified the drawee. For which check(s) is Art entitled to be reimbursed?

A) none of them
B) all of them
C) the first check only
D) the last check only

Question 47

If a consumer reports the loss before the card is used, the consumer: ______.

A) is not liable for any charges.
B) is only liable for losses up to $50.
C) is not liable for losses over $500.
D) is liable if they failed to examine periodic banking statements.

Question 48

Miriam issued two checks. The first check was made payable to her neighbor for a used car that the neighbor sold to Miriam. The second check was a rent payment to Miriam's landlord for the current month's rent.?The car was purchased on the basis of the neighbor's written assurance that the car had only 38,000 miles of use. After Miriam took possession of the car, Miriam's mechanic checked the vehicle and substantiated that the odometer had been turned back. The car had actually been used for 79,000 miles. Miriam stopped payment on the check and offered to return the car. Meanwhile, the neighbor had purchased a computer and had negotiated Miriam's check to the vendor in payment. Discouraged by the problems with the car, Miriam decided to take a vacation. She issued a written stop payment to her bank on the rent check because she intended to use this money for the vacation. Although the drawee bank had ample time to act, it made an error and paid the rent check instead of stopping payment. Two lawsuits resulted. In the first, the vendor of the computer sued Miriam on the check. In the second, Miriam sued her bank for paying over her timely stop payment order. Decide both cases.

Question 49

Consumers have the responsibility to examine periodic statements provided by their financial institutions. If a loss would not have occurred but for the failure of a consumer to report within __________ of the transmittal of the statement any unauthorized transfer, the loss is borne by the consumer.

A) fourteen (14) days
B) thirty (30) days
C) sixty (60) days
D) six (6) months

Question 50

The Railway Express Agency delivered a shipment of goods to Lorraine. Payment for the goods was made with a certified check, payable to the order of the Railway Express Agency. The check was drawn by Lorraine on the First National Bank of Detroit. Later, the bank refused to pay the check when it was presented by Railway Express, the holder, because the bank had become insolvent and stopped doing business. The Railway Express Agency sued Lorraine. Lorraine claimed that she was not liable on the check because it was certified. Is she correct?

Question 51

If a bank pays a check whose face has been altered to increase the amount above that which the drawer intended to pay, the bank:

A) is liable to the drawer for the amount of the increase.
B) is liable to the drawer for the full amount of the check.
C) incurs liability only if it failed to examine the check before payment.
D) incurs liability only if the drawer made the alteration.

Question 52

When a drawee bank pays on a check that lacks an essential endorsement:

A) the drawer is liable.
B) the payee is liable.
C) the drawee bank is liable.
D) no one is liable.

Question 53

Customers are precluded from asserting unauthorized signatures or alterations if they do not report them within __________ from the time the bank statement is received.

A) fourteen (14) days
B) forty (40) days
C) six (6) months
D) one (1) year