Deck 24: Banking in the Digital Age

Question 1

With a joint checking account, the bank can hold any joint-account owner liable for payment of an overdraft even if that owner did not sign the check or benefit from its proceeds.

Answer 1

False

Question 2

If any financial institution, such as a brokerage house, handles a check for payment or collection, the check is covered by UCC Article 4.

Answer 2

False

Question 3

If a bank's payment over a stop-payment order causes subsequent checks written on the drawer's account to be returned for insufficient funds, the bank will be liable for the drawer's resulting costs.

Answer 3

True

Question 4

A bank must re-credit a customer's account when the bank pays a check on which the drawer's signature is forged.

Question 5

Because checks serve as a substitute for cash, they can facilitate financial record keeping.

Question 6

The death of a customer automatically revokes a bank's authority to accept, pay, or collect an item drawn by the customer on an account with the bank.

Question 7

When a bank draws a check on itself, the check is a negotiable instrument at the moment it is issued.

Question 8

A bank may contractually shift to its customer the risk of forged checks created electronically or otherwise by the use of non-manual signatures.

Question 9

Even if a customer's negligence substantially contributes to a forgery of the drawer's signature on a check, the bank is obliged to re-credit the customer's account for the amount of the check.

Question 10

When a bank wrongfully dishonors a check, it is liable to the customer for any resulting damages.

Question 11

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

Question 12

To avoid liability for negligence, a customer must examine monthly bank statements and canceled checks promptly and with reasonable care, and report any forged signatures to the bank.

Question 13

When a bank certifies a check, the bank is agreeing in advance to accept the check when it is presented for payment and to make payment with funds reserved for the purpose.

Question 14

Debit cards represent the most common type of negotiable instrument.

Question 15

A check may fall under Uniform Commercial Code Article 3 as a negotiable instrument and be subject to UCC Article 4 in the course of collection.

Question 16

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

Question 17

If a bank pays a stale check in good faith but without consulting the customer, the bank has no right to charge the customer's account for the amount.

Question 18

Whoever takes an instrument with a forged indorsement cannot become a holder because a forged indorsement does not transfer title.

Question 19

The contractual rights and duties of the bank and the customer depend on the nature of the transaction.

Question 20

If a check is dishonored for insufficient funds, the bank on which the check is drawn is liable to the payee or to the holder in a civil suit.

Question 21

Beca signs a check "pay to the order of City College" drawn on Beca's account in Delta Bank to pay her tuition. Beca is

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

Question 22

If a bank does not dishonor an "on-us" item by the opening of the second banking day following its receipt, the check is considered paid.

Question 23

With respect to processing checks for payment, the Uniform Commercial Code governs the relationships of banks with

A) their customers.
B) the Federal Reserve.
C) only other banks.
D) all of the choices.

Question 24

Franco buys a sofa from Grey at a garage sale. Franco writes Grey a check for $50 to pay for the couch. Grey is

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

Question 25

Because the speed of check-processing time is increasing, to avoid overdrafts, an account-holder needs to verify that funds are available to cover a check when it is written.

Question 26

Dana draws a check on Equity Bank, and asks the bank to agree in advance to accept the check by setting aside sufficient funds to cover the amount. If Equity agrees, the check will be considered

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

Question 27

Checks received after a certain time can be deferred for posting until the next banking day.

Question 28

The destruction of an original check after the creation of a substitute check prevents the check from being paid twice.

Question 29

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

Question 30

A paper check must be presented for payment-it cannot be retained at its place of deposit, with only its image or description presented electronically.

Question 31

Electronic banking has reduced the number of possibilities for tampering with a person's private banking information.

Question 32

If any part of a commercial electronic fund transfer is covered by the Electronic Fund Transfer Act, the entire transaction is excluded from UCC Article 4A.

Question 33

A customer's negligence cannot shift the loss when payment is made on a check with an altered amount.

Question 34

Fewer records are available with electronic banking to prove or disprove that a transaction occurred.

Question 35

A customer can refuse to accept a substitute check created from the digital image of an original check as proof of payment.

Question 36

If only a bank's drive-through facility is open, a check deposited on Saturday will not trigger the bank's midnight deadline until the following Monday.

Question 37

Ken presents an instrument that states "pay to the order of Laura" to Metro Bank for payment. The most common type of negotiable instrument, this is

A) a substitute check.
B) a check.
C) an electronic fund transfer.
D) a payment via a mobile device.

Question 38

Online payment systems are not yet among the most common types of electronic fund transfer systems.

Question 39

Electronic banking makes it easier to issue a stop-payment order.

Question 40

Both stored-value cards and smart cards contain microchips with security programming that can authenticate the validity of a financial transaction.

Question 41

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

Question 42

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

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

Question 43

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

A) any party to whom a subsequent check was written.
B) Ray.
C) Stella.
D) Town Bank.

Question 44

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

A) Ally.
B) Beri.
C) the payee on Ally's next check.
D) no one.

Question 45

Corky pays Debit Bank $500 plus a service fee to draw a check on itself payable to Electric Company. The party responsible for paying the check is

A) Corky only.
B) Corky and Debit Bank.
C) Debit Bank only.
D) Corky, Debit Bank, and Electric Company.

Question 46

Gillis writes a check to Harley as payment for a game player but soon discovers it is broken. He 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) any stated period of time.
C) six days.
D) six months.

Question 47

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

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

Question 48

Dan signs a check "pay to the order of Eton" drawn on Dan's account in Fidelity Bank and dates the check "May 1." Eton 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 49

Rhea writes a check for $100 drawn on Savers Credit Union and presents it to Timpani Jewelers for payment. If the check is not backed by sufficient funds, Rhea may be prosecuted for

A) forgery.
B) fraud.
C) negligence.
D) all of the choices.

Question 50

Quito writes a check to Roy on Quito's account at Sterling Bank. The bank dishonors the check because Quito has insufficient funds in his account. The bank is liable to

A) Quito.
B) Roy.
C) Quito, Roy, and the payees on Quito's subsequent checks.
D) no one.

Question 51

Bok buys an espresso machine from Coffee Gadgets, which bills him for $100. He writes out a check drawn on Dios Bank, but later, believing that the machine is defective, issues a stop-payment order. Dios

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

Question 52

Teri writes a check for $1,000 drawn on United Bank payable to Vida. Vida presents the check for payment to United Bank, which dishonors it. The party most likely liable to Vida is

A) Teri in a civil suit.
B) Teri in a criminal prosecution.
C) United Bank in a civil suit.
D) none of the choices.

Question 53

Dallas presents an uncertified check for payment more than six months after its date. The check was drawn by Emma on her account in First Bank. If the bank follows the usual banking practice in such a case, it will

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

Question 54

Ruth takes her car to Service Center, which repairs the car and bills her for $500. She writes out a check drawn on Tempo Bank, but later, believing that Service Center did not fix the car properly, issues a stop-payment order. If Tempo pays the check, the bank

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

Question 55

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

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

Question 56

Gary writes a check drawn on Hill Bank for $400 "payable to Ian" on May 1. Gary dies on May 3. Ian 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 Ian claims an interest in the account.

Question 57

Elmore pays Fidelity 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 58

Mara has a checking account with North Bank. Mara signs a check "payable to Ovid" drawn on Mara's account. North Bank is

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

Question 59

Tomas signs a check "pay to the order of University Bookstore" drawn on his account in Verity Bank to pay for his textbooks. The bookstore deposits the check in its account in West Bank. Like most checks, this check is

A) virtual cash.
B) digital cash.
C) a special type of draft.
D) a type of electronic fund transfer.

Question 60

Quinn signs a check "pay to the order of Ronda" drawn on Quinn's account in Suburban Bank. Quinn 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) a certified check.
D) a stale check.

Question 61

Misha'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 required to pay no more than

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

Question 62

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 63

When processing a check, Platinum Bank encodes information, such as the amount of the check, on the item. Platinum 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 64

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 65

Ridge 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 traveler's check.

Question 66

Smith & Jones P.A. is a business customer of Tri-State Bank. Under federal law, Smith & Jones cannot demand

A) any proof of payment except the bank'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 67

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

A) one day.
B) one year.
C) one month.
D) six months.

Question 68

Maya uses e-money consisting of funds stored on microchips in her laptop, phone, and tablet to pay bills. This effectively replaces physical cash with virtual cash in the form of

A) coins and paper currency.
B) electronic impulses.
C) checks.
D) none of the choices.

Question 69

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

Finance Bank receives a check drawn on the account of Enterprise Industries, Inc., one of the bank's customers, at 3 P.M. Friday. Dora, 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 71

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 72

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.