Deck 29: Bank Deposits, Collections, and Funds Transfers

Question 1

The payor bank and the drawee bank are two separate banks.

Answer 1

False

Question 2

MICR enables check processing without further human involvement.

Answer 2

True

Question 3

An ATM transaction is activated with a plastic identification card and a POS.

Answer 3

False

Question 4

Consumer electronic funds transfers are covered by Article 4A of the UCC, and nonconsumer electronic transfers are covered by the federal Electronic Fund Transfer Act.

Question 5

If a bank pays on a check even though it has a "stop payment order," it is liable to the customer only if the customer can prove a loss because of the payment.

Question 6

Point of sale systems permit customers to charge items to a charge account at a bank.

Question 7

If a depositor in First Bank takes a check written on Valley Bank to First Bank to deposit, it will normally be credited to the depositor's account at the time of the transaction. This is called a "provisional" credit.

Question 8

Mark takes his wife's paycheck to Valley Bank to deposit in their joint account. Valley Bank may deposit the check without his wife's indorsement unless the indorsement is expressly required.

Question 9

A payor bank is under an obligation to pay an uncertified check that is nine months old.

Question 10

If First Bank receives a check for collection on Friday at 4 p.m., it must present the check to the payor bank by midnight Saturday.

Question 11

In most cases, the collecting bank is the same as the payor bank.

Question 12

If a bank receives a check on Tuesday, it must take proper action by midnight of Wednesday.

Question 13

Under Article 3 of the Code, collecting banks give to a transferee the same basic warranties as those given by other parties who transfer commercial paper.

Question 14

Banks may not pay checks issued by a customer who has died.

Question 15

If a bank pays on a check after the death of its customer, the customer's estate is not automatically entitled to reimbursement.

Question 16

Caryn deposits a check in her bank at 2:30 on Monday. The bank may, under the Code, treat the check as having been deposited on Tuesday for purposes of meeting the midnight deadline rule.

Question 17

If a payor bank gives the provisional settlement as required, it has until the midnight deadline to return the item.

Question 18

The relationship between the payor bank and its checking account customer is exclusively governed by statute and leaves no room for contractual modifications.

Question 19

Banking and the collection process of checks is governed solely by state law, primarily the UCC.

Question 20

Each provisional settlement made in the collection chain is made final when the next bank takes the check.

Question 21

Darla drew a $100 check on ABC Bank payable "to the order of Pamela." Pamela cashed the check at First Bank.
First Bank is an agent of Pamela until the drawee bank pays the check.

Question 22

A financial institution is liable to its customer if an electronic terminal has insufficient cash for a withdrawal of up to
$100.

Question 23

First Bank pays a forged check on Donald's account. Donald finds it when, the day he receives it, he is examining his bank statement for the month. He brings it to the bank the next day to call it to their attention, but they refuse to credit his account. The bank has an obligation to recredit Donald's account.

Question 24

For how long is a written stop payment order valid?

A) One month
B) Six weeks
C) Six months
D) One year

Question 25

An instrument indorsed "pay any bank" may nevertheless have an individual as a holder.

Question 26

Banks like electronic funds transfers because they eliminate the float time that a drawer enjoys on a checking account and the paperwork involved in processing checks.

Question 27

The fact that a drawer has filed a stop payment order automatically relieves the drawer of liability on the underlying obligation.

Question 28

ABC Bank sent Joanne, a depositor, her January statement on January 31. Within what length of time after this date will Joanne have to examine the statement and enclosed items and notify ABC bank of any errors?

A) 10 days
B) 30 days
C) 60 days
D) 1 year

Question 29

A preauthorized fund transfer may be made from a consumer's account if the authorization is done in advance and in writing.

Question 30

For how long is an oral stop payment order valid?

A) 14 calendar days
B) 14 business days
C) One month
D) Six months

Question 31

All depositary institutions are required to disclose APY earned and balance information, including how the balance is calculated, on the periodic statements they must send to customers.

Question 32

An association of banks created for the purpose of settling accounts with each other on a daily basis is a:

A) payor banking group.
B) clearinghouse.
C) provisional reserve.
D) None of these.

Question 33

Check 21 permits banks to remove an original paper check from the check collection process and send instead a substitute check.

Question 34

An oral stop payment order is binding on the payor bank for 14 calendar days.

Question 35

A written stop payment order is effective until revoked in writing.

Question 36

David dies an untimely death in a boating accident two days after writing a check to his landlord. When the check is presented to his bank three weeks later, they refuse to pay. The landlord will have to file a claim in any probate proceedings if he wishes to collect on the check.

Question 37

Under the Competitive Equality Banking Act, a nonlocal check must clear in no more than four intervening business days.

Question 38

If a checking account customer's funds are insufficient to pay all of the items that the bank receives on that account on a given day, the bank may charge the items against the account in any order the bank deems convenient without incurring liability to the customer/drawer for choosing one item over another.

Question 39

The Wall Street Reform and Consumer Protection Act of 2010 requires that the amount of any interchange transaction fee that an issuer may receive or charge with respect to an electronic debit transaction, including those on debit cards issued by small banks and prepaid reloadable cards, must be reasonable and proportional to the cost incurred by the issuer, as determined by the Federal Reserve.

Question 40

The Check Clearing for the 21st Century Act requires banks to accept checks in electronic form.

Question 41

Helen deposits a $50 check in her account at First Bank at 4:00 on Friday. The bank is closed on Saturday and Sunday, but opens again on Monday. The midnight deadline for First Bank would be:

A) Midnight Saturday
B) Midnight Sunday
C) Midnight Monday
D) Midnight Tuesday

Question 42

A system for electronic funds transfers (EFT) in which machines are located in a merchant's store and are activated by the consumer's identification card and code is known as:

A) POS.
B) RAM.
C) EFTA.
D) CHIPS.

Question 43

Which of the following is NOT a duty that a collecting bank has in the collection process?

A) Duty of care
B) Duty to act timely
C) Duty to honor a valid stop payment order
D) Duty to honor a restrictive indorsement

Question 44

If Ben Stewart has a checking account at First Bank:

A) the relationship between Ben and his bank is based primarily on their contractual agreement.
B) First Bank is a creditor and Ben is a debtor.
C) Ben is an agent of First Bank.
D) All of these.

Question 45

If you lose your wallet along with your bank ATM card, your liability is

A) unlimited unless you notify the bank within 30 days.
B) limited to $200 if you notify the bank within 2 days.
C) limited to $500 if you notify the bank within 2 days.
D) limited to $50 if you notify the bank within 2 days.

Question 46

If Valley Bank pays a check over a stop payment order of one of its customers, Valley Bank is subrogated to the rights of:

A) the drawer against the payee or any other holder.
B) any holder in due course on the item against the drawer.
C) the payee or any other holder against the drawer.
D) All of these are correct.

Question 47

Wholesale electronic funds transfers:

A) are also called wholesale wire transfers.
B) involve the transfer of more than one trillion dollars each business day.
C) use Fedwire, CHIPS, and numerous private wire systems.
D) All of these.

Question 48

A substitute check:

A) is basically a copy of the original check that shows both the front and back of the original check.
B) is not suitable for automated processing in the same manner as the original but is used by the banks for storage of the information on an original check after processing.
C) bears a legend stating that it is only a copy of a check and that it is not to be used in the same way as the original.
D) All of these.

Question 49

If Margie makes out a check for $27.50 when she has only $10 in her account, her bank may:

A) refuse to pay the check.
B) pay the check.
C) bill Margie for $17.50 and a service charge.
D) Any of these.

Question 50

Sylvia deposits a $50 check drawn on Valley Bank into her account at First Bank. First Bank transfers the check to Second Bank, which in turn forwards it to Valley Bank, which pays the item. Which of the following is correct?

A) Valley Bank is the payor bank and the drawee bank.
B) Valley Bank is the drawee bank and the collecting bank.
C) Valley Bank is the payor bank and the collecting bank.
D) Valley Bank is the payor bank, the drawee bank and the collecting bank.

Question 51

What Article of the UCC governs electronic funds transfers?

A) Article 3
B) Article 4
C) Article 4A
D) Article 5

Question 52

Doug takes a $500 check drawn by Gail to Gail's drawee bank to cash it. Gail has over $10,000 on deposit in her account. If her bank refuses to pay Doug:

A) Doug can sue the bank and demand payment if the check is not "stale."
B) and the check is over 30 days old, the bank has a right to refuse payment.
C) the bank has incurred a liability to Gail for its improper refusal to pay the check if it is not "stale."
D) All of these.

Question 53

A payment order:

A) is a sender's instruction to a receiving bank to pay, or to cause another bank to pay, a fixed or determinable amount of money to a beneficiary.
B) is issued when sent and, if more than one payment is to be made, the payments are condensed into one payment order.
C) must be communicated in writing or electronically.
D) All of these.

Question 54

On April 6, Ellen sends a check for a magazine subscription and then discovers she has already paid for it. She calls her bank and orders that the bank not make payment. That order will be good until:

A) April 13.
B) October 6.
C) April 13 if confirmed in writing.
D) October 6 if confirmed in writing.

Question 55

Sylvia draws a check on ABC Bank payable "to the order of Ann Smith." Ann indorses it and deposits it in First Bank. First Bank is a:

A) drawee bank.
B) collecting bank.
C) payor bank.
D) None of these.

Question 56

The desired effect of EFTS is to:

A) avoid the delay between issuance of a check and receiving the canceled check.
B) eliminate errors.
C) ease the mobility of society.
D) both avoid the delay between issuance of a check and final payment, and also to eliminate paperwork.

Question 57

Lois takes her paycheck to Third National Bank for deposit at 6 p.m. on Wednesday. Third National Bank has until when to forward the check?

A) Midnight Thursday
B) Midnight Friday
C) Close of business Friday
D) Close of business Thursday

Question 58

Which of the following is true with regard to the federal Electronic Fund Transfer Act?

A) It is primarily a disclosure statute.
B) It gives the same protections to customers that are found in Article 4.
C) It limits a customer's liability for unauthorized transfers to $500 if notification requirements are met.
D) All of these.

Question 59

The first bank to receive a check for collection is the:

A) depositary bank.
B) drawee bank.
C) payor bank.
D) intermediary bank.

Question 60

Which of the following is/are excluded from UCC Article 4A coverage?

A) Credit transactions
B) A transfer of credit that moves from an originator to a beneficiary through the banking system
C) A funds transfer that is, even partially, governed by the EFTA
D) All of these.

Question 61

What is electronic funds transfer? Why do banks like it? What provisions are in the law to protect the customer who uses electronic funds transfer?

Question 62

Theresa has just started working as a teller for First Bank. A man comes into the bank with a $100 check that is eight months old. She goes to the manager to ask whether she should pay it. If you were the manager, what would you advise her? Explain.

Question 63

Which of the following is correct with respect to a bank customer's duty to discover and report unauthorized signatures?

A) The customer is required to exercise reasonable promptness in examining the bank statement.
B) This duty of examination includes the signatures of payees or indorsers.
C) The bank is liable on all items with unauthorized signatures even if these canceled checks were returned to the customer four years prior to the discovery of the alterations.
D) The bank customer must report an unauthorized indorsement within one year of its occurrence.

Question 64

Montey receives his monthly bank statement on December 30th. He looks at it quickly, then sets it aside. Three days later, he examines it again and discovers a forged check. What must he do to avoid responsibility for the check? Cite Code provisions.

Question 65

Describe and summarize what happens during the collection process once a check is deposited in a customer's account. How does it get back to the drawee?

Question 66

What is the effect of a payor bank's dishonor of a check?

A) It returns the check to each intermediary or collecting bank.
B) The provisional credits must be reversed.
C) The customer who deposited the item for collection must cover the item and seek recovery from the drawer or indorsers.
D) All of these will occur.

Question 67

A check drawn on a bank is an order to pay a sum of money and an authorization to charge the amount to the drawer's account. The drawer may countermand this order by which of the following?

A) A canceled check
B) A stop payment order
C) A banker's acceptance
D) A time draft

Question 68

Tania calls her bank to issue an oral stop payment order on a check on March 1. She then leaves town for two weeks to visit her mother. When she returns, she goes to the bank to sign a written stop payment order, but finds the bank has already paid the check. What recourse does she have? Explain, citing provisions in Article 4.

Question 69

What are wholesale funds transfers? What governs these transfers?

Question 70

Cheryl writes checks totaling $200, but she has only $100 in her account. Check #101 is for $50; #102 is for $75; #103 is for $25; and #104 is for $50. All of the checks reach the bank on the same day. In what order should the bank charge them?

A) Under Article 4, it must charge them in the order in which they were drawn.
B) It must call the customer to ask which items should be paid.
C) The bank may pay them in any order it deems convenient.
D) The bank must dishonor all of the checks.

Question 71

Which warranties does a collecting bank give?

A) Warranty of no alteration only
B) Good title, authentic signatures, no alteration, no defense good against it, and no knowledge of insolvency
C) Good title and genuine signatures only
D) A collecting bank does not give any warranties