Deck 24: Banking in the Digital Age

Question 1

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

Answer 1

False

Question 2

To be liable for an overdraft, the customer must have preauthorized the payment of the overdrafts.

Answer 2

True

Question 3

Under the UCC, a bank is a person engaged in the business of banking.

Answer 3

True

Question 4

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

Question 5

If a bank pays a check in spite of a stop-payment order, the bank is not obligated to recredit the customer's account.

Question 6

The bank is not responsible for determining whether the signature on a customer's check is genuine.

Question 7

Checks serve as a substitute for cash.

Question 8

The Uniform Commercial Code does not govern the relationships of banks with one another as they process checks for payment.

Question 9

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

Question 10

A bank is not obligated to honor a stale check.

Question 11

When a customer makes a deposit into a checking account, he or she becomes a creditor for the amount deposited.

Question 12

A person who writes a check is the drawee .

Question 13

If a check is not honored, the bank is liable to the payee or to the holder in a civil suit.

Question 14

The drawer, drawee, or payee of a check can order the bank not to pay it when it is presented for payment.

Question 15

A stop-payment order can be given orally.

Question 16

When a bank wrongfully dishonors a check, it has no liability to the customer.

Question 17

When a bank draws a check on itself, the check is called a certified check .

Question 18

A bank and its customers have a duty to act in good faith with one another.

Question 19

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

Question 20

With a joint checking account, the bank normally can hold any joint account owner liable for overdraft payments.

Question 21

No one who takes an instrument with a forged indorsement can become a holder.

Question 22

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

Question 23

Discovery of forgeries and notice to the bank must take place within four years from the date that the statement was made available for inspection.

Question 24

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

Financial institutions must inform consumers of their rights and responsibilities with respect to electronic fund transfer systems.

Question 26

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 27

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 28

Ken presents an instrument that states "pay to the order of Laura" to Metro Bank for payment. This is the most common type of negotiable instrument regulated by the Uniform Commercial Code, which is

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

Question 29

E-money consists of funds stored on microchips.

Question 30

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

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

Question 31

The general rule is that the bank must recredit the customer's account when it pays on a forged signature.

Question 32

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

Question 33

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

Question 34

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

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

Question 35

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

Question 36

When the customer's negligence substantially contributes to a forgery, the bank normally is still obliged to recredit the customer's account.

Question 37

The Electronic Fund Transfer Act (EFTA) provides a basic framework for the rights, liabilities, and responsibilities of users of EFT systems.

Question 38

Banks that do not exchange checks electronically are required to accept substitute checks in the same way that they accept the original checks.

Question 39

If a customer's debit card is lost or stolen and used without his or her permission, the customer is required to pay the full amount.

Question 40

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

Question 41

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 42

Chad writes Dinah an uncertified check for $500 drawn on Chad's account at Employees Credit Union. Seven months later, Dinah 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

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 44

Fact Pattern 24-1 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.
Refer to Fact Pattern 24-1. Tempo

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

Question 45

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) has no legal effect .

Question 46

Gary writes a check drawn on Hillside 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 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) the payor.
B) the drawee.
C) the drawer.
D) the payee.

Question 48

Brendan signs a check "pay to the order of 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 substitute check.
B) a nonnegotiable instrument.
C) a type of draft.
D) not a substitute for cash.

Question 49

Ervin signs a check "pay to the order of Felicia" drawn on Ervin's account in Garden Fields Bank. Based on a valid legal ground, 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 50

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

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

Question 51

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 52

Tomas writes a check for $1,000 drawn on United Bank and presents it to Viola. Viola presents the check for payment to United 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) United Bank in a civil suit.
D) United Bank in a criminal prosecution.

Question 53

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

Question 54

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 first forged check, Homer fails to report the forgeries within

A) one day.
B) thirty days .
C) one month.
D) six months.

Question 55

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 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.

Question 56

Fact Pattern 24-1 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.
Refer to Fact Pattern 24-1. 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 57

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) all of the choices.

Question 58

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 59

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) only Riley.
B) both Riley and State Bank.
C) only State Bank.
D) only Torque Plumbing.

Question 60

Gillis writes a check to Harley as payment for a video game 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 61

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 62

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 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 63

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 64

When processing a check, Sterling Bank encodes information, such as the amount of the check, on the item. Sterling 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 65

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 66

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 67

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 required to pay no more than

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

Question 68

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' 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 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 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 70

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 71

Ridgeline 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 72

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) bitcoin.