Deck 41: Checks and Electronic Fund Transfers-Part Eight Credit Transactions

Question 1

When a bank receives a properly drawn and payable check and there are sufficient funds to cover the check,if the bank wrongfully dishonors the check,the bank _____.

A) is liable to the drawer even if the depositor had ordered to stop payment
B) may be liable to the drawer only if the depositor's credit rating had been injured
C) is not liable for any damages to the drawer unless the bank dishonored the check intentionally, knowing it to be properly drawn and payable
D) is liable for actual and consequential damages suffered by the drawer

Answer 1

D
Explanation: When a bank receives a properly drawn and payable check on a person's account and there are sufficient funds to cover the check, the bank is under a duty to pay it. If the person has sufficient funds in the account and the bank refuses to pay, or dishonors, the check, the bank is liable for the actual damages proximately caused by its wrongful dishonor as well as consequential damages.

Question 2

On August 1,1990,Lisa wrote a check for $100 payable to the order of Marcia,her sister.Marcia misplaced the check and found it in May 1991,and attempted to cash it.Under these circumstances,_____.

A) the bank must honor the check
B) the bank cannot pay the check out of Lisa's account
C) the bank may, in good faith, pay the check and charge it to Lisa's account
D) the check is no longer valid because it is a stale check

Answer 2

C
Explanation: A bank does not owe a duty to its customer to pay any checks out of the account that are more than six months old. Such checks are called stale checks. However, the bank acting in good faith may pay a check that is more than six months old and charge it to the drawer-depositor's account. In this scenario, the bank may, in good faith, pay the check and charge it to Lisa's account.

Question 3

Which of the following sources governs the relationship between the depositor and the drawee bank?

A) International deposit law
B) Article 6 of the UCC
C) Article 8 of the UCC
D) The deposit agreement

Answer 3

D
Explanation: There are two sources that govern the relationship between the depositor and the drawee bank: the deposit agreement and Articles 3 and 4 of the Uniform Commercial Code (UCC).

Question 4

A bank does not owe a duty to its customer to pay any checks out of the account that are more than six months old.

Question 5

Similar to the Fair Credit Billing Act,the Electronic Funds Transfer Act gives operators a maximum of 90 working days to investigate errors or provisionally recredit the consumer's account.

Question 6

Which of the following is an actual damage that a bank would be liable for when a bank wrongfully dishonors a check?

A) Charges imposed by retailers for returned checks
B) Damages for mental disturbance
C) Injury to the depositor's credit rating that results from the dishonor
D) All problems faced by the drawer

Question 7

A bank is primarily liable on a cashier's check.

Question 8

Any person authorized to sign a check may stop payment on it,even if he or she did not sign the check in question.

Question 9

Generally,a drawee bank is obligated to certify a check.

Question 10

When a person deposits money in an account at a bank,the bank no longer considers that person the owner of the money; instead,he is a creditor of the bank.

Question 11

A bank may pay a postdated check unless it has received notice from the customer not to pay until the date on the check.

Question 12

Which of the following best describes a stale check?

A) A check that has been written by the drawer for a date in the future, which a bank can honor even before the date on the check
B) An incomplete check that is presented to the drawee bank for payment
C) A check that has been written by the maker dated at some point in the past, which can be paid and charged to the customer's account even at the present date
D) A check that is more than six months old for which a bank does not owe its customer a duty to pay out of the account

Question 13

Even if the drawer is negligent and contributes to the alteration of a check,he cannot be barred from claiming it as the reason that a particular check should not be charged to his account.

Question 14

When issuing a stop-payment order,banks claim that the "reasonable certainty" with which customers must describe the check in question should have the dollar amount exact to the penny because the computers they program require such precision.

Question 15

A cashier's check is same as a certified check.

Question 16

While a stop-payment order is in effect,a drawee bank is responsible for establishing the fact and amount of the loss.

Question 17

A drawee bank does not have the right to charge a payable check to a drawer's account if this will create an overdraft in the account.

Question 18

If the drawer of a check orders the drawee bank not to pay the check,the drawee bank generally owes the drawer a duty not to certify the check.

Question 19

Revised Article 3 of the Uniform Commercial Code recognizes the modern bank practice of retaining checks,and permits the bank to supply only a statement showing the item number,amount,and date of payment.

Question 20

During a radical truncation,the drawee bank keeps the original checks.

Question 21

Under revised Article 3 of the Uniform Commercial Code,when multiple forgeries are made by the same wrongdoer,the customer generally cannot hold the bank responsible for paying,in good faith,any such checks after an alteration was available to the customer for a reasonable period,not exceeding:

A) 10 working days.
B) 30 calendar days.
C) 60 calendar days.
D) 14 working days.

Question 22

If a bank pays a check that bears a forged signature of the drawer,the transaction will be treated as one in which the bank paid out of:

A) the depositor's funds under Article 3 of the UCC.
B) its own funds under Article 3 of the UCC.
C) its own funds under Article 4 of the UCC.
D) the depositor's funds under Article 4 of the UCC.

Question 23

Salim carelessly makes a check for $100 to Abel in a way that makes it possible for someone to easily alter it.Abel alters the check to read $1,000.Under these circumstances,_____.

A) if the drawee bank pays the check to Abel in good faith, it can charge the $1,000 to Salim's account
B) a drawee bank can charge the $100 to Salim's account and will be liable for the rest of the altered amount
C) the drawee bank is completely liable to Salim for accepting the altered check even if Salim's negligence contributed to the alteration
D) Abel is liable to the drawee bank and the bank cannot charge the $1,000 to Salim's account

Question 24

A check on which a bank is both the drawer and the drawee is a:

A) cashier's check.
B) stale check.
C) certified check.
D) personal check.

Question 25

If a drawer is negligent and contributes to the forgery or alteration of a check,_____.

A) the bank can charge the drawer for the amount
B) the bank is liable to the drawer for the amount
C) the check is not payable from the customer's account
D) the bank must pay the instrument out of its own funds

Question 26

The Electronic Funds Transfer Act (EFTA)now addresses many of the issues that arise out of consumer use of EFT systems,while _____ of the Uniform Commercial Code deals with the funds transfers that are outside the overage of EFTA.

A) Article 4A
B) Regulation E
C) Articles 3 and 4A
D) Article 3

Question 27

Sasha drew a check payable to the order of Janice on First Bank.Janice indorsed the check and sold it to Karl,who took the check to First Bank and requested that the bank certify the check.The bank did so.Later,Karl presented the check for payment,but First Bank refused to pay.In this scenario,which of the following parties may Karl sue for not receiving payment?

A) First Bank
B) Sasha
C) Janice
D) Sasha and Janice

Question 28

Shankar purchased a new car from Friendly Fred's Autos.Fred indorsed the check to Maya for value.Maya presented the check to the bank,and the bank cashed the check.Later,Shankar attempted to place a stop-payment order on the check,because the car he purchased from Fred was defective.Under these circumstances,_____.

A) the bank is liable to Shankar for paying the amount of the check to Maya
B) Shankar would not be able to have his account recredited
C) Maya must return the funds to the bank
D) Shankar can prove that he has sustained a loss

Question 29

Which of the following statements is true of an oral stop-payment order given by the customer?

A) It is not valid for more than 24 hours.
B) It is valid for only 14 days unless the customer confirms it in writing during that time.
C) It is invalid.
D) It is valid for six months and can be extended for another six months by giving the bank instructions to continue.

Question 30

A person may stop payment on a check:

A) as long as he or she is authorized to draw a check from the account in question.
B) as long as he or she is authorized to draw a check from the account in question and he or she is the party who signed the check in question.
C) as long as he or she has sufficient funds to cover any liability an erroneous stop-payment order would incur.
D) after a month of the deposit of the check.

Question 31

If a bank pays a check after it is given a stop-payment order and has to reimburse its customer for the improperly paid check,_____.

A) it acquires all the rights of its customer against the person to whom it originally made payment
B) it will not acquire the rights arising from the transaction on which the check was based
C) it acquires partial rights of its customer against the person to whom it originally made payment
D) the customer to whom payment was made will retain all the rights

Question 32

If a drawee bank certifies a check,who among the following is discharged of their liability on the check?

A) The drawer only
B) The drawee bank and persons who previously indorsed the check
C) The drawee bank
D) The drawer and the persons who previously indorsed the check

Question 33

The time requirements for notice of postdated checks are similar to those required for:

A) automatic transfers.
B) stop-payment orders.
C) drawer-depositor accounts.
D) stale checks.

Question 34

A written stop-payment order:

A) is valid for only 14 days and cannot be extended further even if written instructions are given to the bank by the customer.
B) is valid for only three months unless confirmed in writing.
C) is not valid for more than 48 hours.
D) is valid for six months, and can be extended for another six months if written instructions are given by the customer.

Question 35

According to the revised Article 4 of the Uniform Commercial Code,which of the following statements is true of a postdated check?

A) It is not properly payable by the drawee bank until the date on the check.
B) A postdated check presented for payment before the date on the check may be paid and charged to the customer's account unless he has given notice of it to the bank.
C) It is considered to be illegal to present a postdated check to a drawee bank.
D) A postdated check presented for payment before the date on the check must be returned to the customer and fees charged to his account.

Question 36

Eli draws a check for $1,500 on Town Bank.The check is made payable to the order of Carmen.Carmen endorses and sells the check to Nita.At Nita's request,Town Bank certifies the check.In this scenario,which of the following is a true statement?

A) Carmen acquires secondary liability on the check.
B) Eli acquires secondary liability on the check.
C) Town Bank acquires primary liability on the check.
D) Eli acquires primary liability on the check.

Question 37

Which of the following is true of the Check 21 Act?

A) The processes it enabled are time-consuming and costly.
B) It is designed to enable banks to handle more checks electronically.
C) It completely discourages check truncation.
D) It requires banks to retain a legible copy of checks for fifteen years.

Question 38

A check drawn by a credit union on its account at a bank is an example of a:

A) personal check.
B) teller's check.
C) certified check.
D) stale check.

Question 39

A bank that knows of a customer's death:

A) cannot pay checks written by the customer.
B) can pay checks written by the customer for a period of 10 days.
C) can pay checks written by the customer for a period of 14 days.
D) cannot pay checks written by the customer till authorized by the heirs.

Question 40

Check 21 contains a special refund procedure,called "expedited recredit," for a customer who suffers a loss because of:

A) the original check.
B) a fraudulent check.
C) a substitute check.
D) a cashier's check.

Question 41

What are the different electronic funds transfer systems utilized by consumers?

Question 42

Which of the following statements is true of wire transfers?

A) Article 4A of the UCC, which covers wire transfers, includes consumer payments that are covered by the Electronic Funds Transfer Act (EFTA).
B) International wire transfer systems are known as "Fedwire."
C) The Federal Reserve operates a domestic wire transfer system that can be made through New York Clearinghouse Payments System (CHIPS).
D) Electronic funds transfers between business and financial institutions are generally referred to as wholesale wire transfers.

Question 43

For improper execution or failure to execute payment orders,banks can be liable to:

A) the originators for their expenses in the transaction along with incidental expenses and interest losses.
B) the beneficiaries for their incidental expenses.
C) the originators for consequential damages.
D) both the originators and beneficiaries for consequential damages, even though the written agreement of the receiving bank does not provide for it.

Question 44

Describe the provisions of the Electronic Funds Transfer Act.

Question 45

Which article of the Uniform Commercial Code covers electronic funds transfers between businesses and financial institutions?

A) Article 1A
B) Article 4A
C) Article 3A
D) Article 2A

Question 46

Which of the following is a factor of the Electronic Funds Transfer Act that differs from the Fair Credit Billing Act?

A) Consumer's liability when the card is stolen
B) Bank's liability if it makes unauthorized transfers
C) The consumer's liability for unauthorized electronic funds transfers
D) The financial institution's liability to the consumer for failure to make or stop payments

Question 47

Which of the following is an electronic funds transfer system?

A) Paper checks
B) Point-of-sale terminals
C) Certified checks
D) Mailing checks to the bank

Question 48

Will a drawee bank be liable to the drawer of the check while a stop-payment order is in effect? If yes,under what circumstances will the drawee bank be liable?

Question 49

Explain the difference between a certified check,a cashier's check,and a teller's check.

Question 50

Describe the limitations on the bank's right or duty to charge the depositor's account for the check.