Deck 20: Banking in the Digital Age

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

A customer can escape liability for failing to notify the bank of forged or altered checks when the customer can prove that the bank was negligent.

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

The Uniform Commercial Code regulates checks.

Question 20

A check is a special type of draft.

Question 21

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

Question 22

Today, most checks are processed manually.

Question 23

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 24

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

Question 25

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

Question 26

Keanu presents an instrument that states “pay to the order of Laura” to Mega Bank for payment. This instrument is the most common type of negotiable instrument, which is

Question 27

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

Question 28

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

Question 29

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

Question 30

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 31

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

Question 32

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 33

Smart cards carry and process security programming.

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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)cash.

Question 39

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 40

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 41

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

A) ​only Riley.
B) ​both Riley and State Bank.
C) ​only State Bank.
D) ​none of the choices.

Question 42

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

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

Question 43

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 44

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) ​Ewanwill 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 45

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 46

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 non negotiable instrument.
C) ​a type of draft.
D) ​not a substitute for cash.

Question 47

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.

Question 48

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 is

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

Question 49

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 50

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

Question 51

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.

Question 52

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 53

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 54

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 on December 15. This is​

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

Question 55

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 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

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 58

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 59

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

A) ​Tomas in a civil suit.
B) ​Tomas in a criminal prosecution.
C) ​Unity Bank in a civil suit.
D) ​none of the choices.

Question 60

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. If First City follows the usual banking practice in such a case, it will

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

Question 61

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

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

Question 62

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 63

Fact Pattern 20-1
​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.
Refer to Fact Pattern 20-1. Britney is responsible for

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

Question 64

Fact Pattern 20-1
​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.
Refer to Fact Pattern 20-1. When Britney receives her Campus Bank statement, she demands that the bank investigate the matter and recredit his account. The bank​

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

Question 65

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.

Question 66

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) ​a provisional credit.

Question 67

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

Question 68

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) acashier's check.
C) a substitute check.
D) ​a void check.

Question 69

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

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

Question 70

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 pay or 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 71

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) ​Tuesday.

Question 72

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

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.