Deck 26: Legal Aspects of Banking

Question 1

The clearinghouse banks save up the checks drawn on other members and exchange them on a weekly basis.

Answer 1

False

Question 2

Since the letter of credit ordinarily will be irrevocable, the bank will be bound to pay the draft when presented (assuming the proper documents are attached), regardless of deficiencies ultimately found in the goods.

Answer 2

True

Question 3

The principal body of law applica?ble to the letter of credit in the United States is Ar?ticle 4 of the Uniform Commercial Code.

Answer 3

False

Question 4

Every check written must eventually come back to the bank on which it is drawn.

Question 5

The relationship between the bank and its checking-account customer are governed by the Code and cannot be modified by the bank.

Question 6

According to Section 4, a bank can refuse to pay a check that was drawn more than six months before being presented.

Question 7

A bank can take more than one role.

Question 8

According to the Electronic Fund Transfer Act, no creditor can insist that a person repays his/her outstanding extensions of credit electronically.

Question 9

If a bank pays a check notwithstanding a "stop payment order," it is only liable to the customer if the customer can prove she suffered a loss as a result of the payment.

Question 10

Section 4-104 defines "item" as "an instrument or a promise or order to pay money handled by a bank for collection or payment, including credit or debit card slip.

Question 11

Unless the parties agree otherwise, however, a bank that improperly executes a payment order is not liable for consequential damages.

Question 12

In the check collection process it is required that the image be converted to a substitute check, the electronic image itself would not suffice.

Question 13

The Electronic Fund Transfer Act prohibits a financial institution to provide a customer with an EFT card "valid for use," if the customer has not specifically requested for one, even if it is renewing an expired card.

Question 14

The Electronic Fund Transfer Act of 1978 does not include automatic transfers between a customer's different accounts at the same financial institution.

Question 15

While filing for a new trial and judgment notwithstanding the verdict, which was denied by the court in the case Meade v. National Bank of Adams County, the Bank asserted that the court erred when it overruled the motion for summary judgment filed by the defendant.

Question 16

Jillian wrote a check for $2500 to Payee. A day later Jillian untimely died. The bank may not pay the check.

Question 17

As a courtesy to his roommate, Seth, Robert took Seth's paycheck to deposit in Seth's account. The bank may deposit the check without Seth's indorsement unless it is expressly required.

Question 18

Any financial institution in the check clearing process can scan and destroy the original check and create a substitute check.

Question 19

The Clearinghouse Corporation is formed by correspondent banks, in which members exchange checks and payments on a check-by-check basis.

Question 20

Section 4-103(1) permits the bank to vary its terms including that the bank can disclaim responsibility for failing to act in good faith.

Question 21

Tom writes a check to Marty, both of whom have accounts at L.A. Bank. Marty deposits the check on Monday. It is available to Marty on _____.

A) Thursday
B) Monday itself
C) Wednesday
D) Tuesday
E) Friday

Question 22

_____ Banks are banks that have formed "partnerships" with other banks in order to exchange checks and payments directly, bypassing the Federal Reserve and its fee.

A) Cooperative
B) Corporation
C) Co-partner
D) Correspondent
E) Collaborative

Question 23

According to the Electronic Fund Transfer Act of 1978, which of the following is true in case of an error in the customer's statement?

A) A customer has ten working days to write or call to a financial institution if he/she feels that an error has been made in his/her statement.
B) The customer is entitled to the copies of the documents relied on in the investigation.
C) The financial institution has sixty days to investigate and correct the error if any has been reported by the customer.
D) If the financial institution takes more than forty-five days, it must credit the customer with the amount in dispute so that he/she can use the money while the investigation is ongoing.
E) If the customer has called up the financial institution about an error in his/her statement, written information is not required.

Question 24

The two terms used to describe the various banks that may handle the check after its written are collecting banks and _____ banks.

A) correspondent
B) intermediary
C) payor
D) depository
E) clearinghouse corporation

Question 25

On June 1, Ralph wrote a check to Payee dated June 15. The bank may pay the item prior to June 15 unless Ralph informs the bank of the post-dated check.

Question 26

Darcy's checking account is insufficient to pay all the checks she has written. The bank must charge the items in the order they were written (the first check written is paid first, and so on).

Question 27

Electronic funds transfers do not eliminate the "float time" on a check.

Question 28

Section 4-213(1) spells out that it will convert a payor bank's provisional settlement into final settlement when it:

A) does not pay the items in cash.
B) settles without reserving a right to revoke.
C) settles while having a right under statute, clearinghouse rule, or agreement with the customer.
D) has not yet posted the item to the appropriate account.
E) makes provisional settlement and provokes the settlement in the time and manner permitted by the statute, clearinghouse rule, or agreement.

Question 29

An office where banks exchange checks and drafts and settle accounts, owned by the member banks participating is known as _____.

A) collecting bank
B) correspondent bank
C) intermediary bank
D) clearinghouse corporation
E) payor bank

Question 30

A bank is liable for paying out over a forged drawer's signature.

Question 31

According to the Electronic Fund Transfer Act of 1978, which of the following is true in case of recourse for loss or theft?

A) Is a customer fails to notify the issuer about a missing or stolen EFT card, within two working days, the liability is $500.
B) If the loss or theft of an Electronic Fund Transfer card is reported after sixty days of receipt, the customer's liability is $5000.
C) If a customer notifies the issuer of the Electronic Fund Transfer card within two business days after learning that their card is missing or stolen, their liability is limited to $50.
D) A customer would have fifty percent liability if he/she notifies the financial institution for funds withdrawn from a missing or lost Electronic Fund Transfer card after the sixtieth day.
E) Under Electronic Fund Transfer Act Section 903(6), a customer can have ninety percent of the liability if he/she notifies the financial institution about the missing or lost EFT card after ninety days.

Question 32

A _____ bank handles checks, but not including payor and depository banks.

A) correspondent
B) intermediary
C) clearinghouse corporation
D) collecting
E) wholesale funds transfers

Question 33

Which of the following holds true in case of a substitute check?

A) A substitute check is an electronic reproduction of the original check which is suitable for automated processing in the same manner as the original check.
B) Only the Federal Reserve can provide substitute checks in place of the original checks in the check processing stream.
C) In the check collection process it is not required that the image be converted to a substitute check; the electronic image itself suffice.
D) The Check 21 Act replaces existing state laws regarding the substitute checks.
E) The Uniform Commercial Code doesn't apply to a transaction dealing with substitute checks.

Question 34

Article 4A addressed the frequently occurring legal issues in funds transfers by stating that ____.

A) a customer will not be liable when the order is from a person unrelated to its business operations
B) in cases where the error would have been discovered had the bank complied with its security procedure, the sending bank is liable for the excess over the amount intended
C) a bank that improperly executes a payment order is not liable for consequential damages even if the parties agree otherwise
D) even if a bank establishes a commercially reasonable procedure, complies with that procedure, and acts in good faith and according to its agreement with the customer, the customer is not bound by an unauthorized payment order
E) in cases where the error cannot have been discovered, even if the bank had complied with its security procedure, the receiving bank is liable for the excess over the amount intended by the sender

Question 35

A collecting bank is one _____.

A) that collects the amount of a check for its customers from the payor bank
B) into which a check is deposited by its payee
C) that handles checks, but not including payor and depository banks
D) upon which a check is drawn; the drawee
E) where banks exchange checks and drafts and settle accounts, owned by the member banks participating

Question 36

If the depository bank is also the payor bank, the check is called a(n) _____.

A) "on-us" item
B) "provisional credit"
C) "seasonal-item"
D) "receipt of the item"
E) "seasoned-check"

Question 37

Which of the following holds true for the Uniform Commercial Code Article 4?

A) The effect of "pay any bank" indorsement means that the bank may not specially indorse the check to a person who is not a bank.
B) A depository bank may not supply any indorsement of the customer necessary to title if the check contains words such as "payee's indorsement required."
C) Under Section 4-212(1), as long as the settlement is final, a collecting bank has the right to "charge-back" or refund if the check is dishonored.
D) If the settlement is provisional, the collecting bank cannot claim a refund.
E) The warranties given in the collection process cannot be disclaimed as to checks.

Question 38

The Expedited Funds Availability Act -also referred to as "Regulation CC", states that _____.

A) it has nothing to do with the electronic transfers
B) when a customer deposits a cashier's check, certified check, or a check written on an account in the same bank, the funds must be available by the next five business day
C) funds drawn on institutions within the same Federal Reserve region must be available within five working days
D) there is a maximum ten-day wait for funds from out-of-town checks
E) the time limits are effective, even if the customer has not endorsed the check in a designated space on the back side

Question 39

Which of the following is allowed according to the provisions of Section 4?

A) A customer cannot write a check for a sum greater than the amount in his/her account.
B) If a stop order is not renewed, the bank will be liable for paying the check, even one that is quite stale.
C) If a bank wrongfully dishonors an item, it is not liable to the customer for any damages.
D) A bank can refuse to pay a check that was drawn more than six months before being presented.
E) Even after notice of death of a customer, a bank cannot payor certify checks drawn on or prior to the date of death.

Question 40

An oral stop-payment order is invalid.

Question 41

What argument does Dubious have when he wants the bank to re-credit her account for the incorrect fasteners mix-up? Who wins?

Question 42

What is the Bank's liability on the credit-card withdrawals; what is Dubious'?

Question 43

What are the various forms of Electronic Fund Transfers (EFT)?

Question 44

What points were asserted by the Bank while filing for a new trial and judgment notwithstanding the verdict, which was denied by the court in the case Meade v. National Bank of Adams County?

Question 45

What determines whether settlement us provisional or final?

Question 46

Which of the following errors was asserted by the Bank while filing for a new trial and judgment notwithstanding the verdict, which was denied by the court in the case Meade v. National Bank of Adams County?

A) The court did not err when it overruled the motion for summary judgment filed by the defendant.
B) The court did not err when it permitted the plaintiff to offer evidence as to his attorney fees, court costs and the cost of taking depositions.
C) The trial court did not err when it overruled the motion of the defendant for a directed verdict at the conclusion of the plaintiff's case and again at the conclusion of evidence.
D) The judgment of the court is not contrary to law, and it is also at par with the manifest weight of the evidence.
E) The trial court erred when it overruled the motion of the defendant for a new trial and for a judgment notwithstanding the verdict.

Question 47

A oral stop-payment order is g___________ days.

A) 180
B) 14 calendar
C) 14 business
D) 30 days
E) 60 days