Deck 19: Checks and Banking in the Digital Age

Question 1

A bank is obligated to pay an uncertified check presented less than six months from its date.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

A stale check is one that has been outstanding for longer than one month.

Answer 3

False

Question 4

A bank that has certified a check is under no obligation to accept it.

Question 5

A written stop payment order is valid for fourteen days.

Question 6

A drawer is liable to the holder of a check if the check is not honored.

Question 7

A bank is subject to a civil suit if its customer writes a bad check.

Question 8

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

Question 9

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

Question 10

An oral stop payment order is valid for thirty days.

Question 11

Certified checks are instruments that have been accepted for payment by the institutions on which they are drawn.

Question 12

A check carries with it an implied promise to reimburse the bank for paying the check.

Question 13

Generally,a bank has no obligation to pay a customer's overdrafts.

Question 14

When a check "bounces," its holder can resubmit the check later,hop?ing that suf?ficient funds will be available.

Question 15

A check is a special type of certificate of deposit.

Question 16

UCC Articles 3 and 4 govern checks.

Question 17

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

Question 18

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

Question 19

A bank that fails to detect an alteration to its customer's check is liable to the customer for the loss.

Question 20

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

Question 21

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

Question 22

Generally,the funds represented by a deposited local check must be avail?able for withdrawal within one business day.

Question 23

Gaining unauthorized access to an electronic fund transfer system is a felony.

Question 24

A customer has sixty days from the date of receipt of a statement of an electronic transfer to notify the financial institution of any er?rors.

Question 25

The bank on which a check is drawn is the payor bank.

Question 26

If a customer's debit card is lost or stolen,the customer will not be liable for any unauthorized use of the card.

Question 27

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

Question 28

A financial institution must encode a returned check with certain information.

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

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

Question 32

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 four-party instrument.
C) a three-party instrument.
D) a two-party instrument.

Question 33

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

Question 34

Generally,a cash deposit is not available for withdrawal until the next business day.

Question 35

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 certificate of deposit.
B) a check.
C) a note.
D) a trade acceptance.

Question 36

Stored-value cards are a form of digital cash.

Question 37

Kris presents an instrument that states "pay to the order of Liv" 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 certificate of deposit.
B) a check.
C) a debit card transaction receipt.
D) a trade acceptance.

Question 38

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

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 trade acceptance.

Question 40

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 41

First Community Bank agrees to accept a check by setting aside suffi?cient funds to cover the amount.This check is considered

A) cashed.
B) certified.
C) deposited.
D) provisionally credited.

Question 42

Fact Pattern 19-1 (Questions 15 and 16 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 19-1.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 43

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 44

Steve steals one of Tricia's checks and forges her signature.Tricia's bank,Unity Bank,pays the check.Tricia can recover from

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

Question 45

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) a certified check.
C) a trade acceptance.
D) a traveler's check.

Question 46

John writes a check to Kay 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 47

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 48

Dora writes a check for $100 drawn on Eastern Bank and presents it to Fast Cash,Inc.,for payment.If the check is not backed by sufficient funds,Dora may be prosecuted for

A) forgery.
B) fraud.
C) negligence.
D) robbery.

Question 49

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 50

Jen signs a check "pay to the order of Key" drawn on Jen's account in Little Bank to buy Key's car.Jen asks Little Bank to indicate on the face of the check that it will accept it when Key presents it for payment.If the bank agrees,this will be

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

Question 51

Thelma signs a check "pay to the order of Uri" drawn on Thelma's account in Verity Bank.Thelma has $400 in her account but the amount of the check is $500,which the bank pays.This is

A) a dishonored check.
B) an overdraft.
C) a postdated check.
D) a stale check.

Question 52

Elmer can write checks on his account at Finance Bank.Gina steals the checks,forges Elmer's signature,and cashes the checks at Finance. The bank is excused from any liability if,after receipt of the first forged check,Elmer fails to report the forgeries within

A) five business days.
B) fourteen consecutive days.
C) one year.
D) three years.

Question 53

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 dishonored check.
B) an overdraft.
C) a postdated check.
D) a stale check.

Question 54

Pat,the manager of Quik Mart,deposits the store's receipts in its account at Regional Bank.As to the receipts,the relation?ship between Quik Mart and the bank is

A) attorney and client.
B) creditor and debtor.
C) guardian and ward.
D) trustee and beneficiary.

Question 55

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 56

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 57

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 58

Fact Pattern 19-1 (Questions 15 and 16 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 19-1.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 59

Dan writes a check to Emma on his account at First State Bank.The bank dishonors the check even though Dan has sufficient funds in his ac?count.The bank is

A) liable to Dan only.
B) liable to Dan and Emma.
C) liable to Emma only.
D) not liable to Dan or Emma.

Question 60

Liu signs a check "pay to the order of Marv" drawn on Liu's account in National Bank.Liu later orders National not to pay the check,but the bank pays it over Liu's order.Subsequent checks written on Liu's account "bounce." Most likely liable for the costs to Liu is

A) any party to whom a subsequent check was written.
B) Liu.
C) Marv.
D) National.

Question 61

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 62

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

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

Question 63

Tiny authorizes United Bank to make transfers from his account to make payments on his debt to Vic's Auto Dealership,which sold Tiny the car that serves as collateral for the debt.After three payments,Vic's repos?sesses the car and refuses to return it.Tiny phones the bank to stop the payments and follows up with a confirm?ing letter.The bank fails to stop the next two payments,and Vic's refuses to refund anything.Can Tiny get his money from the bank? Explain.

Question 64

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 65

Fact Pattern 19-3 (Questions 32 and 33 apply)
Mike loses his National Bank access card. He realizes his loss the next day but waits a week to call National. Meanwhile, Opal finds and uses Mike's card to withdraw $3,000 from Mike's account.
Refer to Fact Pattern 19-3.When Mike receives his National statement,he demands that the bank investigate the matter and recredit his ac?count.The bank

A) has no duty to investigate.
B) must investigate and, if the dispute is not resolved within ten days, recredit Mike's account (at least until the dispute is resolved).
C) must investigate and immediately recredit Mike's account (at least until the dispute is resolved).
D) must investigate but need not recredit Mike's account.

Question 66

Fact Pattern 19-3 (Questions 32 and 33 apply)
Mike loses his National Bank access card. He realizes his loss the next day but waits a week to call National. Meanwhile, Opal finds and uses Mike's card to withdraw $3,000 from Mike's account.
Refer to Fact Pattern 19-3.Mike is responsible for

A) $0.
B) $50.
C) $500.
D) $3,000.

Question 67

Fact Pattern 19-2 (Questions 27-29 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. First National 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 State Bank.
Refer to Fact Pattern 19-2.Tom's bank is

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

Question 68

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 69

Dina's debit card,issued by Eminent Bank,is stolen and used without Dina's permission.Dina tells Eminent Bank within thirty days.Dina may be re?quired to pay no more than

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

Question 70

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 71

Fact Pattern 19-2 (Questions 27-29 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. First National 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 State Bank.
Refer to Fact Pattern 19-2. Digital's bank is

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

Question 72

Fact Pattern 19-2 (Questions 27-29 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. First National 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 State Bank.
Refer to Fact Pattern 19-2.When Digital's 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, even if it was not a "banking" day.
C) before noon of the next banking day.
D) within five business days.