Deck 28: Banking in the Digital Age

Question 1

A forged signature on a check has no legal effect as the signature of a drawer.

Answer 1

True

Question 2

Few laws directly apply to the security of e-money payment information and e-money issuers' financial records.

Answer 2

True

Question 3

Banks must pay interest based on the full balance of a customer's interest-bearing account on the day the bank posts the interest.

Answer 3

False

Question 4

Check 21 requires banks to change their current check-collection practices.

Question 5

If a person does not consent, a federal agency normally must obtain a warrant to access his or her financial records.

Question 6

If a bank wrongfully dishonors a cashier's check, a holder can recover only the amount of the check.

Question 7

A stop-payment order is an order by a customer to his or her bank not to pay a certain check.

Question 8

If a customer's debit card is lost or stolen and used without his or her permission, the customer shall be required to pay no more than $50 in any event.

Question 9

A bank may contractually shift to the customer the risk of forged checks created electronically or by the use of nonmanual signatures.

Question 10

The bank is liable to the payee or the holder of check in a civil suit if a check is dishonored for insufficient funds.

Question 11

A check is a special type of draft that is drawn on a bank, ordering the bank to pay a fixed amount of money on demand.

Question 12

Financial institutions that exchange digital images of checks must also send the original paper checks.

Question 13

In every situation involving a forged drawer's signature or an alteration, a bank must observe reasonable commercial standards of care in paying on a customer's check.

Question 14

Checks are usually three party instruments.

Question 15

A bank may not charge a postdated check against a customer's account unless the customer notifies the bank, in a timely manner, to pay the check before the stated date.

Question 16

Even if the bank pays a check in spite of a stop-payment order, the bank will not be obligated to recredit the customer's account.

Question 17

When receiving a stale check for payment, a bank has no option but to pay the check.

Question 18

If a bank pays a check in spite of a stop-payment order, the bank is liable only for amount of the actual loss suffered by the drawer because of the wrongful payment.

Question 19

A customer who fails to report a forged signature within thirty days from the date that the bank statement showing the item was made available for inspection loses the legal right to have the bank recredit his or her account.

Question 20

When a customer makes a deposit, the customer becomes a creditor, and the bank a debtor, for the amount deposited.

Question 21

Fact Pattern 28-2B (Questions B16-B18 apply)
Belle draws a check on her account in Capital Credit Bank in New York, payable to Distribution Marketing, Inc., in San Francisco. Distribution Marketing deposits the check in its ac?count at Equity Bank. Equity Bank deposits the check in the Federal Reserve Bank of San Francisco, which transfers it to the Federal Reserve Bank of New York. That Federal Reserve Bank sends the check to Capital Credit.
Refer to Fact Pattern 28-2B. Capital Credit, Belle's bank, is

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

Question 22

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 special type of draft.
D) not a substitute for cash.

Question 23

Fact Pattern 28-2B (Questions B16-B18 apply)
Belle draws a check on her account in Capital Credit Bank in New York, payable to Distribution Marketing, Inc., in San Francisco. Distribution Marketing deposits the check in its ac?count at Equity Bank. Equity Bank deposits the check in the Federal Reserve Bank of San Francisco, which transfers it to the Federal Reserve Bank of New York. That Federal Reserve Bank sends the check to Capital Credit.
Refer to Fact Pattern 28-2B. When Equity Bank received the check, it was required to pass it on

A) before midnight of the next banking day.
B) before midnight of the next day, whether or not it was a "banking" day.
C) before noon of the next banking day.
D) within five business days.

Question 24

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

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

Question 25

Kenyon steals one of Lavender's checks and forges her signature. Lavender's bank, Metro Bank, pays the check. Lavender can recover from

A) Kenyon, but not Metro Bank.
B) Metro Bank, which cannot recover from Kenyon.
C) Metro Bank, which can recover from Kenyon.
D) no one.

Question 26

Shakira issues a check drawn on Thrifty Bank to Ranch & Farm Supply to pay for a rototiller. Later, Shakira discovers a defect in the device and orders Thrifty to stop payment on the check. Shakira does not renew the order, and the bank clears the check eight months later. The bank

A) must recredit Shakira's account.
B) must obtain funds from Ranch & Farm to cover the check.
C) must substitute acceptable goods.
D) need not recredit Shakira's account.

Question 27

Fact Pattern 28-1B (Questions B8 and B9 apply)
Dana takes her car to Efficient Auto Repair Service, which repairs the car and bills Dana for $500. She writes out a check drawn on First Choice Bank, but later, believing that Efficient Auto did not repair the car properly, issues a stop-payment order.
Refer to Fact Pattern 28-1B. If First Choice pays the check, the bank

A) can sue Dana for a wrongful stop-payment order.
B) can sue Efficient Auto for breach of contract.
C) is liable to Efficient Auto for the time and trouble to return the payment.
D) is liable for Dana's loss due to the wrongful payment.

Question 28

When processing a check, Superior Bank encodes information, such as the amount of the check, on the item. Superior thereby warrants to any subsequent bank or payor

A) the item has been returned to the drawer.
B) nothing.
C) the check has been processed manually.
D) the encoded information is correct.

Question 29

Valley Bank retains the cancelled checks of its customers. Valley must be able to provide customers with legible copies of checks paid for

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

Question 30

Fact Pattern 28-2B (Questions B16-B18 apply)
Belle draws a check on her account in Capital Credit Bank in New York, payable to Distribution Marketing, Inc., in San Francisco. Distribution Marketing deposits the check in its ac?count at Equity Bank. Equity Bank deposits the check in the Federal Reserve Bank of San Francisco, which transfers it to the Federal Reserve Bank of New York. That Federal Reserve Bank sends the check to Capital Credit.
Refer to Fact Pattern 28-2B. Central City, Distribution Marketing's bank, is

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

Question 31

Amelia writes a check to Barry on her account at Community Savings Bank. The bank dishonors the check even though Amelia has sufficient funds in her ac?count. The bank is

A) liable to Amelia.
B) liable to itself.
C) liable to the payee on Amelia's next check.
D) not liable.

Question 32

Oscar buys a new HD TV from Priceless Retail Mart, using the means that accounts for more retail payments than any other. This means of payment is

A) a cashier's check.
B) a debit card.
C) a personal check.
D) digital cash.

Question 33

Dru signs a check "pay to the order of Eppie" drawn on Dru's account in First State Bank. Greta forges Eppie's indorsement. First State 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 State will have to recredit Dru's account.
D) the Federal Reserve will reimburse all parties for their costs.

Question 34

Cleo writes a check for $100 drawn on Debit & Credit Bank and presents it to Elegant Jewelers for payment. If the check is not backed by sufficient funds, Cleo may be prosecuted for

A) forgery.
B) fraud.
C) negligence.
D) nothing.

Question 35

Fact Pattern 28-1B (Questions B8 and B9 apply)
Dana takes her car to Efficient Auto Repair Service, which repairs the car and bills Dana for $500. She writes out a check drawn on First Choice Bank, but later, believing that Efficient Auto did not repair the car properly, issues a stop-payment order.
Refer to Fact Pattern 28-1B. First Choice

A) is liable to Efficient Auto for the amount of the check.
B) must stop payment if First Choice has a reasonable time to act.
C) need not follow Dana's order because it was issued after the check.
D) need not follow Dana's order unless the check was certified.

Question 36

Misty's debit card, issued by National United Bank, is stolen and used without her permission. She tells the bank within thirty days. She may be re?quired to pay no more than

A) $5.
B) $50.
C) $500.
D) $5,000.

Question 37

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

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

Question 38

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 39

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

A) the Federal Reserve will reimburse all parties for their costs.
B) Grendel and the bank will each suffer half of the amount of the loss.
C) Grendel will be liable for the amount.
D) the bank will have to recredit Grendel's account.

Question 40

Fredrik signs a check "pay to the order of Gennifer" drawn on Fredrik's account in Harborside Bank to buy Gennifer's jet ski. Fredrik asks the bank to indicate on the face of the check that it will accept it when Gennifer presents it for payment. If the bank agrees, this will be

A) a cashier's check.
B) a certified check.
C) a teller's check.
D) a traveler's check.

Question 41

Qiara steals a check from Reese, forges his signature, and transfers the check to Salon Beauteous, a beauty and barber salon, for value. Unaware that the signature is not Reese's, Salon Beauteous presents the check to Town & Country Bank, the drawee, which cashes the check. Reese discovers the forgery and insists that his bank recredit his account. Can the bank refuse? If not, from whom can the bank recover?

Question 42

On an automated teller machine (ATM) belonging to USA Bank, Sven placed a card-skimming device to pull information from the magnetic strips of users' debit cards. The device then transmitted the stolen data to thieves who used it to gain access to, and empty, the bank accounts of the users, including Megan. Megan learned of the theft the next day and promptly notified USA. Is Megan entitled to a recredit of her account for the most of the loss due to the theft? Explain.