Deck 15: Banking in the Digital Age

Question 1

A drawer is liable to the holder of a check in a civil suit if the check is dishonored for insufficient funds.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

A check other than a certified check that is presented for payment more than six months from its date is a stale check.

Answer 3

True

Question 4

A bank's duty to honor a check drawn on a customer's account is subject to the stipulation that the account has sufficient funds to pay the check.

Question 5

When a bank pays a check on which the drawer's signature is forged, generally the customer suffers the loss.

Question 6

Any failure of a bank to honor a check because it would create an overdraft is a wrongful dishonor.

Question 7

Only a customer or a person authorized to draw on an account can order a bank not to pay a check when it is presented for payment.

Question 8

A bank that encodes information for electronic presentment warrants to any subsequent bank that the information is correct.

Question 9

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

Question 10

An agency relationship arises between the customer and the bank when the customer writes a check on his or her account.

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

A certified check is a check that has been accepted in writing by the bank on which it is drawn.

Question 16

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

Question 17

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

Question 18

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

Question 19

A customer has two days to discover and notify the bank of any error on the monthly statement involving an electronic transfer of funds.

Question 20

A customer who has been negligent may share liability with the bank, when the bank is also negligent.

Question 21

Smart cards carry and process security programming.

Question 22

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

Question 23

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

Question 24

Tri State Bank agrees to accept a check by setting aside sufficient funds to cover the amount. This check is considered​

A)cashed.
B)certified.
C)deposited.
D)a provisional credit.

Question 25

Stored-value cards can be used to buy goods and services offered by the cards' issuer.

Question 26

Ana writes a check to Becky on Ana's account at Community Bank. The bank dishonors the check even though Ana has sufficient funds in her account. The bank is liable to​

A)Ana.
B)Becky.
C)the payee on Ana's next check.
D)no one.

Question 27

Daisy signs a check "pay to the order of Ewan" drawn on Daisy's account in Finance Bank. Graham forges Ewan's indorsement. Finance Bank pays the check. Most likely​

A)Daisy will be liable for the amount.
B)Ewan will have to pay Daisy for the amount.
C)Finance Bank will have to recredit Daisy's account.
D)the Federal Reserve will reimburse all parties for their costs.

Question 28

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

Question 29

Foster forges Greta's signature on a check "payable to the order of Foster" drawn on Greta's account in Hearthside 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 Hearthside's customers.
C)Greta will be liable for the amount.
D)Hearthside will have to recredit Greta's account.

Question 30

A bank-customer relationship gives rise to contractual rights and duties.

Question 31

When a bank draws a check on itself, the check is called a cashier's check.

Question 32

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

Question 33

Smith & Jones Associates is a business customer of Town Bank. Under federal law, Town Bank is not required to provide Smith & Jones with the following

A)any proof of payment except Town'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 34

A check is a special type of draft drawn on a bank.

Question 35

Today, most checks are processed manually.

Question 36

The general rule is that a bank that pays a customer's check bearing a forged indorsement is obligated to recredit the customer's account.

Question 37

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

Question 38

The Uniform Commercial Code regulates checks.

Question 39

Any local check deposited must be available for withdrawal by check or as cash within one business day from the date of deposit.

Question 40

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 41

Refer to Fact Pattern 15-1. When Britney receives her Campus Bank statement, she demands that the bank investigate the matter and recredit heraccount. The bank

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

Question 42

Keanu delivers an instrument to Laura that states 'pay to the order of Laura'. Laura then presents the instrument to MegaBank 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 payment via a mobile device.

Question 43

Tomas writes a check for $1,000 drawn on Urban Bank and presents it to Viola. Viola presents the check for payment to Urban Bank, which dishonors it because of insufficient funds. The party most likely liable to Viola is

A)Tomas in a civil suit.
B)Tomas in a criminal prosecution.
C)Urban Bank in a civil suit.
D)Urban Bank in a criminal prosecution.

Question 44

Riley pays State Bank $500 plus a service fee to draw a check on itself payable to Torque Plumbing. The party responsible for paying the check is​

A)Riley.
B)State Bank.
C)Torque Plumbing.
D)Torque Plumbing's bank.

Question 45

Refer to Fact Pattern 15-1. Britney is responsible for​

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

Question 46

Homer can write checks on his account at InterCity Bank. Jemma steals the checks, forges Homer's signature, and cashes the checks at InterCity. The bank is excused from any liability if, after receipt of the bank statement following the first forged check, Homer fails to report the forgery within

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

Question 47

Drew signs a check "pay to the order of Eastern State University" drawn on Drew's account in Fidelity Bank to pay her tuition. Drew is​

A)none of the choices.
B)the drawee.
C)the drawer.
D)the payee.

Question 48

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

A)an oversight.
B)an overdraft.
C)a certified check.
D)a stale check.

Question 49

Franco buys a sound system from Georg at Georg's garage sale. Franco writes Georg a check for $250 to pay for the system. Georg is​

A)none of the choices.
B)the drawee.
C)the drawer.
D)the payee.

Question 50

On Friday morning, Geoff deposits into his account at Heartland Bank a $500 check from Imelda, who also has an account at Heartland. On that same day, this check is considered

A)cashiered.
B)certified.
C)paid.
D)an on-us item.

Question 51

Rico buys a meal in Sushi Bowl using the simplest kind of e-money system. This means of payment is

A)a smart card.
B)a stored-value card.
C)a check.
D)cash.

Question 52

Gillian writes a check to Harris as payment for a video game player but soon discovers the player is broken. She goes to the drawee bank and orally authorizes Ilene, a bank officer, to stop payment on the check. This order is valid for​

A)fourteen days.
B)one year.
C)six days.
D)six months.

Question 53

Jackie inserts a debit card issued by her bank into a machine and keys in her personal identification number. She then withdraws $500 in cash. Jackie used​

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

Question 54

Falls River Bank receives a check drawn on the account of Get-Rich Industries, Inc., one of the bank's customers, at 3 p.m. Friday. Hildy, the presenter of the check, is not one of the bank's customers. The bank uses deferred posting with a 2 p.m. cutoff hour. If it decides to dishonor the check, it must do so by midnight

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

Question 55

Gary writes a check drawn on Hilltop Bank for $400 "payable to Ivan" on May 1. Gary dies on May 3. Ivan presents the check to the bank on May 5. Unaware of Gary's death, the bank​

A)must certify the check.
B)may pay the check.
C)must consult with Gary's heirs before paying the check.
D)can do nothing until Ivan claims an interest in the account.Fact Pattern 15-1 Britney loses her Campus Bank access card.She realizes her loss the next day but waits a week to call the bank.Meanwhile, Drake finds and uses Britney's card to withdraw $3,000 from Britney's account.

Question 56

Travis signs a check "pay to the order of Umberto" drawn on Travis's account in Valley Bank. Travis has $400 in his account but the amount of the check is $500, which the bank pays. This creates

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

Question 57

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

A)the item has been returned to the drawer.
B)none of the choices.
C)the check has been processed manually.
D)the encoded information is correct.

Question 58

Marta has a checking account with Neighbors Bank. Marta signs a check "payable to Olive" drawn on Marta's account. Neighbors Bank is

A)none of the choices.
B)the drawee.
C)the drawer.
D)the payee.Fact Pattern 15-1 Britney loses her Campus Bank access card.She realizes her loss the next day but waits a week to call the bank.Meanwhile, Drake finds and uses Britney's card to withdraw $3,000 from Britney's account.

Question 59

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

A)any party to whom a subsequent check was written.
B)Ervin.
C)Felicia.
D)Garden Fields Bank.

Question 60

O'Shea issues a check drawn on Prime Bank to Quality Equipment Supply to pay for a backhoe. Later, O'Shea discovers a defect in the backhoe and orders the bank to stop payment on the check. O'Shea does not renew the order, and the bank clears the check eight months later. The bank​

A)must recredit O'Shea's account.
B)must obtain funds from Quality to cover the amount of the check.
C)must substitute acceptable goods.
D)need not recredit O'Shea's account.

Question 61

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 most of the loss due to the theft? Explain.

Question 62

Clyde issues a check payable to Discount Mart. Ethel, Discount's cashier, forges the store's indorsement and deposits the check in her account. Clyde's bank, Farmers State Bank, pays the check. Clyde's bank can recover the amount of the check from

A)Ethel, but not the bank that paid Ethel.
B)the bank that paid Ethel, which cannot recover from Ethel.
C)the bank that paid Ethel, which can recover from Ethel.
D)neither Ethel nor the bank that paid Ethel.

Question 63

Nick steals two checks from Pauline-a blank check and a check payable to the order of Retail Outlets Company, drawn on Pauline's account with State Bank. Nick forges Pauline's signature on the blank check and makes it payable to himself. Nick forges Retail Outlets's indorsement on the back of the check payable to Retail Outlets, and adds "Pay to the order of Nick." At United Credit Union, Nick indorses the back of both checks with his own name and gives them to United for cash. United does not know about the theft or the forged signatures and presents the checks to State Bank, which pays them. Pauline, who was not negligent, discovers the forgeries and asks State Bank to recredit her account. Who suffers the loss on each check?​

Question 64

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

A)Simon.
B)Trudy.
C)United Bank.
D)Western Bank.

Question 65

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. This check is

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

Question 66

Elmore 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 67

Ridgetop 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)a cashier's check.
C)a substitute check.
D)a void check.

Question 68

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 and intent to defraud can be proved, Cleo may be prosecuted for

A)forgery.
B)writing a bad check.
C)negligence.
D)nothing.

Question 69

Joni writes Keizer an uncertified check for $500 drawn on Joni's account at Labor Employees Credit Union. Seven months later, Keizer presents the check for payment. The credit union pays the check in good faith without consulting Joni. The credit union​

A)cannot charge Joni's account for any amount.
B)can charge Joni's account for $250 only.
C)can charge Joni's account for $500.
D)is liable for breach of contract.

Question 70

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

A)is effective if an innocent third party accepts the check.
B)is effective to the degree that it matches Caleb's genuine signature.
C)is effective to the extent that Downtown Bank debits Caleb's account.
D)has no legal effect.

Question 71

On Monday, Ellery deposits in her account at Fiscal Bank a local check for $500. Within one business day from the date of deposit, Ellery can withdraw

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

Question 72

Dalton presents an uncertified check for payment more than six months after its date. The check was drawn by Emma on her account in First City Bank. First bank may do all of the following except

A)cash the check.
B)consult Emma.
C)refuse to cash the check.
D)ask Dalton what he would prefer.