Deck 25: Checks and Banking in the Digital Age

Question 1

When a customer deposits cash into a checking account,he or she becomes a debtor for the amount deposited.

Answer 1

False

Question 2

A bank is NOT responsible for determining whether a signature on a customer's check is genuine.

Answer 2

False

Question 3

A customer who writes a bad check may be subject to criminal prosecution.

Answer 3

True

Question 4

A customer can stop payment on a check that has been certified or accepted by a bank.

Question 5

The rights and duties of a bank and its customer are contractual.

Question 6

A bank is NOT obligated to pay an uncertified check presented less than six months from its date.

Question 7

Commercial banking practices consider a check that has been outstanding for three months to be a stale check.

Question 8

If there are insufficient funds to cover the amount of a check in a customer's account,the bank may pay the item and create an overdraft without the customer's authorization.

Question 9

A bank may NOT pay any checks on a customer's account after the date of the customer's death.

Question 10

If a customer does not have sufficient funds to pay a check available in his or her checking account and the bank dishonors the check,then the bank is liable to the customer.

Question 11

A written stop payment order is only valid for thirty days.

Question 12

A check is a special type of draft.

Question 13

The incompetence of a customer revokes a bank's authority to pay an item.

Question 14

A forged signature is effective as the signature of a drawer to the extent that is resembles the drawer's actual signature.

Question 15

A certified check is a check that has been signed by a notary public.

Question 16

An oral stop payment order is valid for fourteen days.

Question 17

A check is NOT a substitute for cash.

Question 18

A bank's responsibility to honor its customers' checks is NOT absolute.

Question 19

The Uniform Commercial Code governs checks.

Question 20

A bank has no right to charge a customer's account for the amount of a stale check.

Question 21

The first bank to receive a check for payment is the depositary bank.

Question 22

A bank cannot recover from a party who cashes a check bearing a forged indorsement once the bank has accepted and paid the item.

Question 23

Scott presents an instrument that states "pay to the order of Scott" to Town Bank for payment.This instrument is the most common type of negotiable instrument,which is

A)a commercial wire transfer.
B)a check.
C)a note.
D)a substitute check.

Question 24

Financial institutions that exchange digital images of checks do not have to exchange the original paper checks.

Question 25

A bank that encodes information on an item after its issue warrants to any subsequent bank that the information is correct.

Question 26

Stored-value cards are a form of digital cash.

Question 27

Today,most checks are processed manually.

Question 28

A substitute check is a paper reproduction of the front and back of an original check that contains all the same information required on checks for automated processing.

Question 29

Currently,it is not clear which,if any,laws apply to the security of e-money payment information.

Question 30

The Federal Reserve System acts as a clearinghouse where banks exchange checks.

Question 31

Kris presents an instrument that states "pay to the order of Kris" to Metro Bank for payment.This is a special type of draft drawn on a bank,ordering the bank to pay a fixed amount of money on demand.This is

A)a commercial wire transfer.
B)a check.
C)a debit card transaction receipt.
D)a cash transaction

Question 32

The Check Clearing in the 21st Century Act (Check 21) applies only in about 75 percent of the states.

Question 33

Albert buys a surround sound system from his neighbor George at George's garage sale.Albert writes George a check for $250 for the sound system.George is

A)the certifier.
B)the drawee.
C)the drawer.
D)the payee.

Question 34

A point-of-sale system is a type of electronic fund transfer system.

Question 35

A customer must examine a bank statement and report any discovered forged signa?ture to recover from the bank for the forgery.

Question 36

Each bank in a collection chain must pass a check on before noon of the day of its receipt.

Question 37

Rikki signs a check "pay to the order of Scholar University" drawn on Rikki's account in State Bank to pay her tuition.Rikki is

A)the certifier.
B)the drawee.
C)the drawer.
D)the payee.

Question 38

A bank that pays a customer's check with a forged drawer's signature can generally pass the loss onto the customer.

Question 39

Ian buys a cell phone in Jiffy Mart,using the means that accounts for more retail payments than any other.This means of payment is

A)a commercial check.
B)a debit card.
C)a personal check.
D)a cash.

Question 40

A forged indorsement does NOT transfer title.

Question 41

Fact Pattern 25-1 (Questions 17 and 18 apply)
Echo takes her car to Fix-It,Inc.,which repairs the car and bills Echo for $500.Echo writes out a check drawn on Capital Bank,but later,believing that Fix-It did not repair the car properly,issues a stop-payment order.
Refer to Fact Pattern 25-1.Capital Bank pays the check.Capital

A)can sue Echo for a wrongful stop-payment order.
B)can sue Fix-It for breach of contract.
C)can sue no one because it paid a check that was not properly payable.
D)is liable for Echo's loss due to the wrongful payment.

Question 42

Brendan signs a check "pay to the order of City College Bookstore" drawn on his account in Delta Bank to pay for his current semester's textbooks.The bookstore deposits the check in its account in Eagle Bank.Like most checks,this check is

A)a one-party instrument.
B)a nonnegotiable instrument.
C)a type of draft.
D)not a substitute for cash.

Question 43

Fact Pattern 25-1 (Questions 17 and 18 apply)
Echo takes her car to Fix-It,Inc.,which repairs the car and bills Echo for $500.Echo writes out a check drawn on Capital Bank,but later,believing that Fix-It did not repair the car properly,issues a stop-payment order.
Refer to Fact Pattern 25-1.Capital Bank

A)is liable to Fix-It for the amount of the check.
B)must stop payment if Capital has a reasonable time to act.
C)need not stop payment unless Echo had a valid reason to act.
D)need not follow Echo's order unless the check was certified.

Question 44

Ellen pays State Bank $500 plus a service fee to draw a check on itself payable to Paul's Plumbing.Which of the following parties is responsible for paying the check?

A)Only Ellen
B)Both Ellen and State Bank
C)Only State Bank
D)None of the parties

Question 45

Elton presents an uncertified check for payment more than six months after its date.The check was drawn by Dakota on her account in First Community Bank.The usual banking practice in such a case is to

A)cash the check.
B)consult the customer.
C)refuse to cash the check.
D)ask the payee what he or she would prefer.

Question 46

Julia opens a checking account with Washington Bank and deposits funds into the account.Julia and Washington Bank

A)do not have a contractual relationship.
B)have a creditor-debtor relationship in which Julia is the creditor and Washington Bank is the debtor.
C)have a creditor-debtor relationship in which Washington Bank is the creditor and Julia bank is the debtor.
D)do not have a creditor-debtor relationship.

Question 47

A bank must be able to provide customers with legible copies of checks paid for up to

A)one year.
B)five years.
C)seven years.
D)nine years.

Question 48

Dru signs a check "pay to the order of Eppie" drawn on Dru's account in First Federal Bank.Greta forges Eppie's indorsement.First Federal pays the check.Most likely

A)Dru will be liable for the amount.
B)Eppie will have to pay Dru for the amount.
C)First Federal will have to recredit Dru's account.
D)the Federal Reserve will reimburse all parties for their costs.

Question 49

Jacob writes Phillip an uncertified check for $500 on January 1.Seven months later,Phillip presents the check at the bank.The bank pays the check in good faith without consulting Jacob.The bank

A)does not have the right to charge Jacob's account for $500.
B)only has the right to charge Jacob's account for $250.
C)has the right to charge Jacob's account for $500.
D)can be held liable for breach of contract.

Question 50

John writes a check to Kayla as payment for a DVD player but soon discov?ers the player is broken.He goes to the drawee bank and orally author?izes Larry,a bank officer,to stop payment on the check.This order is valid for

A)fourteen days.
B)fourteen months.
C)thirty days.
D)six months.

Question 51

Jen signs a check "pay to the order of Key" drawn on Jen's account in Little Bank to buy Key's car.If there are insufficient funds in Jen's account to cover the amount of the check,but the bank pays it,this creates

A)a cashier's check.
B)an overdraft.
C)a stale check.
D)a stop-payment order.

Question 52

Kip writes a check for $1,000 drawn on Local Bank and presents it to Mira.Mira presents the check for payment to Local Bank,which dis?hon?ors it.The party most likely liable to Mira is

A)Kip in a civil suit.
B)Kip in a criminal prosecution.
C)Local Bank in an administrative proceeding.
D)neither Kip nor Local Bank.

Question 53

Simon signs a check "pay to the order of Tilly" drawn on Simon's account in United Bank.Vela forges Tilly's indorsement,First Federal Bank cashes the check,and Vela disappears.United pays First Federal and debits Simon's account.Most likely,the ultimate loss will fall on

A)Simon.
B)Trudy.
C)United Bank.
D)First Federal Bank.

Question 54

Trudy forges Uma's signature on a check "payable to the order of Trudy" drawn on Uma's account in Verity Bank.Most likely,if the bank pays the check

A)the Federal Reserve will reimburse all parties for their costs.
B)the loss will be apportioned among all of Verity's customers.
C)Uma will be liable for the amount.
D)Verity will have to recredit Uma's account.

Question 55

Mary writes a check drawn on County Bank for $400 "payable to Bill" on May 1.Mary dies on May 3.Bill presents the check to County Bank on May 5.County Bank

A)may not pay the check.
B)may pay the check.
C)must consult with Mary's heirs before paying the check.
D)must read Mary's will before paying the check.

Question 56

Brandy forges Caleb's signature on a check "payable to the order of Brandy" drawn on Caleb's account in Downtown Bank.Caleb's forged signature is

A)effective if an innocent third party accepts the check.
B)effective to the degree that it matches Caleb's genuine signature.
C)effective to the extent that Downtown Bank debits Caleb's account.
D)not effective.

Question 57

Martha has a checking account with Hometown Bank.Martha signs a check "payable to Phillipa" drawn on Martha's Hometown Bank account.Hometown Bank is

A)the payer.
B)the drawee.
C)the drawer.
D)the payee.

Question 58

Dhani signs a check "pay to the order of Etan" drawn on Dhani's account in First State Bank and dates the check "May 1." Etan presents the check to the bank for payment on December 15.This is

A)a cashier's check.
B)an overdraft.
C)a certified check.
D)a stale check.

Question 59

Elmo pays First National Bank $1,000 plus a service fee to draw a check on itself made payable to Go Delivery Service.This is

A)a cashier's check.
B)an overdraft.
C)a stale check.
D)a stop-payment order.

Question 60

Little Local Bank wrongfully fails to honor a check signed by its customer Andrea.Little Local Bank is

A)not liable to Andrea for damages resulting from its refusal to pay.
B)only liable to Andrea for damages resulting from its refusal to pay if Andrea takes action against the bank within one business day of the failure to honor the check.
C)only liable to Andrea for one half of the damages resulting from its refusal to pay.
D)liable to Andrea for damages resulting from its refusal to pay.

Question 61

Smith & Jones Associates is a business customer of Superior Bank.Under federal law,Smith & Jones cannot demand

A)any proof of payment except Superior's good faith.
B)monthly statements.
C)recrediting of its account on payment of a forged item.
D)the return of its original checks with its monthly statements.

Question 62

On Monday,Michelle deposits in her account at Fiscal Bank a local check for $500.After 5:00 p.m.on Friday,from these funds,Michelle can withdraw no more than

A)$100.
B)$400.
C)$500.
D)$600.

Question 63

Paris knowingly divulges to Media Exposure magazine information about Randy's e-money payments to City Bank.The payments were in trans?mission to City Bank when Paris,without the consent of Randy or City Bank,discovered and revealed them.This may be a violation of

A)the Electronic Communications Privacy Act.
B)the Federal Reserve Board's Regulation E.
C)the Right to Financial Privacy Act.
D)the Uniform Electronic Transactions Act.

Question 64

Hoppy steals two checks from Eagle Retail Stores,Inc.-a blank check and a check payable to the order of General Supplies Company (GSC),drawn on Eagle's account with First National Bank.Hoppy forges Eagle's signa?ture on the blank check and makes it payable to himself.Hoppy forges GSC's indorsement on the back of the check payable to GSC,and adds "Pay to the order of Hoppy." At Friendly Credit,Inc.,Hoppy indorses the back of both checks with his own name and gives them to Friendly for cash.Friendly does not know about the theft or the forged signatures and presents the checks to First National,which pays them.Eagle,which was not negli?gent,discovers the forgeries and asks First National to recredit its ac?count.Who suffers the loss on each check?

Question 65

E-Bank,an online financial institution,gives financial information about Paula and other customers to a federal agency without the cus?tomers' permission.E-Bank may be liable under

A)the Federal Trade Commission Act.
B)the Financial Services Modernization Act.
C)the Right to Financial Privacy Act.
D)the Uniform Electronic Transactions Act.

Question 66

Guaranty Bank receives a check drawn on the account of Get-Rich Industries,Inc.,one of the bank's customers,at 3 p.m.Friday.Garry,the pre?senter of the check,is not one of the bank's customers.The bank uses de?ferred posting with a 2 p.m.cutoff hour.If it decides to dis?honor the check,it must do so by midnight

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

Question 67

Joy steals a check from Kyle,forges his signature,and transfers the check to Loco Loans,Inc.,for value.Unaware that the signature is not Kyle's,Loco Loans presents the check to Metro Bank,the drawee,which cashes the check.Kyle discovers the forgery and insists that Metro recredit his account.Can Metro refuse? If not,from whom can the bank recover?

Question 68

Jackie inserts a debit card issued by her bank into a machine and keys in her personal identification number.She is then able to withdraw $500 in cash.Jackie is using a

A)automated teller machine.
B)point-of-sale system.
C)direct deposit system.
D)Internet payment system.

Question 69

Clyde issues a check payable to Discount Mart.Elle,Discount's cashier,forges the store's indorsement and deposits the check in her bank ac?count.Clyde's bank,First State Bank,pays the check.Clyde can recover from

A)Elle,but not First State Bank.
B)First State Bank,which cannot recover from Elle.
C)First State Bank,which can recover from Elle.
D)no one.

Question 70

Fact Pattern 25-2 (Questions 27-28 apply)
Tom draws a check,on his account in State Bank in New York,payable to Digital Media,Inc.,in San Francisco.Digital deposits the check in its ac?count at First National Bank.
Refer to Fact Pattern 25-2.Tom's bank is

A)the cashing bank.
B)the depositary bank.
C)the intermediary bank.
D)the payor bank.

Question 71

Best Banking Bank creates a paper reproduction of customer Sophie's check with the statement "This is a legal copy of your check.You can use it in the same way you would use the original check." This is a

A)certified check.
B)cashier's check.
C)substitute check.
D)void check.

Question 72

Fact Pattern 25-2 (Questions 27-28 apply)
Tom draws a check,on his account in State Bank in New York,payable to Digital Media,Inc.,in San Francisco.Digital deposits the check in its ac?count at First National Bank.
Refer to Fact Pattern 25-2. Digital's bank is

A)the cashing bank.
B)the depositary bank.
C)the intermediary bank.
D)the payor bank.