Deck 41: Checks and Electronic Fund Transfers

Question 1

A written stop-payment order is valid for six months, and the customer can extend it for an additional six months by giving the bank instructions in writing to continue the order.

Answer 1

True

Question 2

Which of the following is an actual damage that a bank would be liable for when a bank wrongfully dishonors a check?

A) Charges imposed by retailers for returned checks
B) Damages for mental disturbance
C) Injury to the depositor's credit rating that results from the dishonor
D) All problems faced by the drawer

Answer 2

A
Explanation: When a bank receives a properly drawn and payable check on a person's account and there are sufficient funds to cover the check, the bank is under a duty to pay it. If the person has sufficient funds in the account and the bank refuses to pay, or dishonors, the check, the bank is liable for the actual damages proximately caused by its wrongful dishonor as well as consequential damages. Actual damages may include charges imposed by retailers for returned checks, as well as damages for arrest or prosecution to the customer.

Question 3

Even when a bank receives a properly drawn and payable check on a person's account and there are sufficient funds to cover the check, the bank is not under a legal duty to pay it.

Answer 3

False

Question 4

A check on which a bank is both the drawer and the drawee is known as a certified check.

Question 5

When a bank receives a properly drawn and payable check and there are sufficient funds to cover the check, if the bank wrongfully dishonors the check, the bank _____.

A) is liable to the drawer even if the depositor had ordered to stop payment
B) may be liable to the drawer only if the depositor's credit rating had been injured
C) is not liable for any damages to the drawer unless the bank dishonored the check intentionally, knowing it to be properly drawn and payable
D) is liable for actual and consequential damages suffered by the drawer

Question 6

Which of the following sources governs the relationship between the depositor and the drawee bank?

A) International deposit law
B) Article 6 of the UCC
C) Article 8 of the UCC
D) The deposit agreement

Question 7

Which of the following best describes a stale check?

A) A check that has been written by the drawer for a date in the future, which a bank can honor even before the date on the check
B) An incomplete check that is presented to the drawee bank for payment
C) A check that has been written by the maker dated at some point in the past, which can be paid and charged to the customer's account even at the present date
D) A check that is more than six months old for which a bank does not owe its customer a duty to pay out of the account

Question 8

Under the Electronic Fund Transfer Act (EFTA), the operators of electronic fund transfer (EFT) systems are given a maximum of thirty (30) calendar days to investigate errors or provisionally recredit the customer's account.

Question 9

When the depositor deposits a check to a checking account, the bank becomes his agent for collection of the check.

Question 10

Normally, a drawee bank is not obligated to certify a check.

Question 11

If an account is overdrawn, the customer owes the bank the amount of the overdraft, and the bank may take that amount out of the next deposit that the customer makes or from another account that the depositor maintains with the bank.

Question 12

Revised Article 3 of the Uniform Commercial Code recognizes the modern bank practice of retaining checks, and permits the bank to supply only a statement showing the item number, amount, and date of payment.

Question 13

Article 2 of the Uniform Commercial Code (UCC) governs bank deposits and collections.

Question 14

Any person authorized to draw a check may stop payment of it.

Question 15

On August 1, 1990, Lisa wrote a check for $100 payable to the order of Marcia, her sister. Marcia misplaced the check and found it in May 1991, and attempted to cash it. Under these circumstances, the _____.

A) bank must honor the check
B) bank cannot pay the check out of Lisa's account
C) bank may, in good faith, pay the check and charge it to Lisa's account
D) check is no longer valid because it is a stale check

Question 16

The customer may give an oral stop-payment order to the bank, but it is valid for only fourteen (14) days unless the customer confirms it in writing during that time.

Question 17

The bank's signature is not required to create a certified check.

Question 18

Check 21 is a federal law that is designed to enable banks to collect more checks electronically.

Question 19

A check that bears a forged signature of the drawer or payee is nevertheless properly payable from the customer's account.

Question 20

If a bank pays a check after it has received a stop-payment order and has to reimburse its customer for the improperly paid check, it acquires all the rights of its customer against the person to whom it originally made payment, except for rights arising from the transaction on which the check was based.

Question 21

The time requirements for notice of postdated checks are similar to those required for:

A) automatic transfers.
B) stop-payment orders.
C) drawer-depositor accounts.
D) stale checks.

Question 22

Salim carelessly makes a check for $100 to Abel in a way that makes it possible for someone to easily alter it. Abel alters the check to read $1,000. Under these circumstances, _____.

A) if the drawee bank pays the check to Abel in good faith, it can charge the $1,000 to Salim's account
B) a drawee bank can charge the $100 to Salim's account and will be liable for the rest of the altered amount
C) the drawee bank is completely liable to Salim for accepting the altered check even if Salim's negligence contributed to the alteration
D) Abel is liable to the drawee bank and the bank cannot charge the $1,000 to Salim's account

Question 23

Check 21 contains a special refund procedure, called "expedited recredit," for a customer who suffers a loss because of _____ check.

A) the original
B) a fraudulent
C) a substitute
D) a cashier's

Question 24

If a drawee bank certifies a check, who among the following is discharged of their liability on the check?

A) The drawer only
B) The drawee bank and persons who previously indorsed the check
C) The drawee bank
D) The drawer and the persons who previously indorsed the check

Question 25

Shankar purchased a new car from Friendly Fred's Autos. Fred indorsed the check to Maya for value. Maya presented the check to the bank, and the bank cashed the check. Later, Shankar attempted to place a stop-payment order on the check, because the car he purchased from Fred was defective. Under these circumstances, _____.

A) the bank is liable to Shankar for paying the amount of the check to Maya
B) Shankar would not be able to have his account recredited
C) Maya must return the funds to the bank
D) Shankar can prove that he has sustained a loss

Question 26

A person may stop payment on a check:

A) as long as he or she is authorized to draw a check from the account in question.
B) as long as he or she is authorized to draw a check from the account in question and he or she is the party who signed the check in question.
C) as long as he or she has sufficient funds to cover any liability an erroneous stop-payment order would incur.
D) after a month of the deposit of the check.

Question 27

Which of the following is true of the Check 21 Act?

A) The processes it enabled are time-consuming and costly.
B) It is designed to enable banks to handle more checks electronically.
C) It completely discourages check truncation.
D) It requires banks to retain a legible copy of checks for 15 years.

Question 28

A check drawn by a credit union on its account at a bank is an example of a _____ check:

A) personal
B) teller's
C) certified
D) stale

Question 29

A bank that knows of a customer's death:

A) cannot pay checks written by the customer.
B) can pay checks written by the customer for a period of 10 days.
C) can pay checks written by the customer for a period of 14 days.
D) cannot pay checks written by the customer until authorized by the heirs.

Question 30

Under revised Article 3 of the Uniform Commercial Code, when multiple forgeries are made by the same wrongdoer, the customer generally cannot hold the bank responsible for paying, in good faith, any such checks after an alteration was available to the customer for a reasonable period, not exceeding _____ days.

A) 10 working
B) 30 calendar
C) 60 calendar
D) 14 working

Question 31

If a bank pays a check after it is given a stop-payment order and has to reimburse its customer for the improperly paid check, _____.

A) it acquires all the rights of its customer against the person to whom it originally made payment
B) it will not acquire the rights arising from the transaction on which the check was based
C) it acquires partial rights of its customer against the person to whom it originally made payment
D) the customer to whom payment was made will retain all the rights

Question 32

A written stop-payment order is:

A) valid for only 14 days and cannot be extended further even if written instructions are given to the bank by the customer.
B) valid for only three months unless confirmed in writing.
C) not valid for more than 48 hours.
D) valid for six months, and can be extended for another six months if written instructions are given by the customer.

Question 33

Eli draws a check for $1,500 on Town Bank. The check is made payable to the order of Carmen. Carmen endorses and sells the check to Nita. At Nita's request, Town Bank certifies the check. In this scenario, which of the following is a true statement?

A) Carmen becomes secondarily liable on the check.
B) Eli becomes secondarily liable on the check.
C) Town Bank becomes primarily liable on the check.
D) Eli becomes primarily liable on the check.

Question 34

A check on which a bank is both the drawer and the drawee is a:

A) cashier's check.
B) stale check.
C) certified check.
D) personal check.

Question 35

Sasha drew a check payable to the order of Janice on First Bank. Janice indorsed the check and sold it to Karl, who took the check to First Bank and requested that the bank certify the check. The bank did so. Later, Karl presented the check for payment, but First Bank refused to pay. In this scenario, which of the following parties may Karl sue for not receiving payment?

A) First Bank
B) Sasha
C) Janice
D) Sasha and Janice

Question 36

According to the revised Article 4 of the Uniform Commercial Code, which of the following statements is true of a postdated check?

A) It is not properly payable by the drawee bank until the date on the check.
B) A postdated check presented for payment before the date on the check may be paid and charged to the customer's account unless he has given notice of it to the bank.
C) It is considered to be illegal to present a postdated check to a drawee bank.
D) A postdated check presented for payment before the date on the check must be returned to the customer and fees charged to his account.

Question 37

If a drawer is negligent and contributes to the forgery or alteration of a check, the _____.

A) bank can charge the drawer for the amount
B) bank is liable to the drawer for the amount
C) check is not payable from the customer's account
D) bank must pay the instrument out of its own funds

Question 38

The Electronic Funds Transfer Act (EFTA) now addresses many of the issues that arise out of consumer use of EFT systems, while _____ of the Uniform Commercial Code deals with the funds transfers that are outside the overage of EFTA.

A) Article 4A
B) Regulation E
C) Articles 3 and 4A
D) Article 3

Question 39

Which of the following statements is true of an oral stop-payment order given by the customer?

A) It is not valid for more than 24 hours.
B) It is valid for only 14 days unless the customer confirms it in writing during that time.
C) It is invalid.
D) It is valid for six months and can be extended for another six months by giving the bank instructions to continue.

Question 40

If a bank pays a check that bears a forged signature of the drawer, the transaction will be treated as one in which the bank paid out of:

A) the depositor's funds under Article 3 of the UCC.
B) its own funds under Article 3 of the UCC.
C) its own funds under Article 4 of the UCC.
D) the depositor's funds under Article 4 of the UCC.

Question 41

What are the different electronic funds transfer systems utilized by consumers?

Question 42

For improper execution or failure to execute payment orders, banks can be liable to:

A) the originators for their expenses in the transaction along with incidental expenses and interest losses.
B) the beneficiaries for their incidental expenses.
C) the originators for consequential damages.
D) both the originators and beneficiaries for consequential damages, even though the written agreement of the receiving bank does not provide for it.

Question 43

Explain the difference between a certified check, a cashier's check, and a teller's check.

Question 44

Describe the limitations on the bank's right or duty to charge the depositor's account for the check.

Question 45

Explain what a stop-payment order is, and explain the legal difference (in terms of time period of effectiveness) between an oral stop-payment request and a written stop-payment request.

Question 46

Describe the provisions of the Electronic Funds Transfer Act.

Question 47

Which of the following is an electronic funds transfer system?

A) Paper checks
B) Point-of-sale terminals
C) Certified checks
D) Mailing checks to the bank

Question 48

Which of the following statements is true of wire transfers?

A) Article 4A of the UCC, which covers wire transfers, includes consumer payments that are covered by the Electronic Funds Transfer Act (EFTA).
B) International wire transfer systems are known as "Fedwire."
C) The Federal Reserve operates a domestic wire transfer system that can be made through New York Clearinghouse Payments System (CHIPS).
D) Electronic funds transfers between business and financial institutions are generally referred to as wholesale wire transfers.

Question 49

Which article of the Uniform Commercial Code covers electronic funds transfers between businesses and financial institutions?

A) Article 1A
B) Article 4A
C) Article 3A
D) Article 2A

Question 50

Which of the following is a factor of the Electronic Funds Transfer Act that differs from the Fair Credit Billing Act?

A) Consumer's liability when the card is stolen
B) Bank's liability if it makes unauthorized transfers
C) The consumer's liability for unauthorized electronic funds transfers
D) The financial institution's liability to the consumer for failure to make or stop payments