Question 1

ABC Bank sent Joanne, a depositor, her January statement on January 31. Within what length of time after this date will Joanne have to notify ABC bank of any instruments containing alterations or unauthorized signatures included in her January statement?

Accepted Answer

The Uniform Commercial Code (UCC) requires that a depositor notify the bank of any unauthorized signatures or alterations within a reasonable period of time, not to exceed 30 days.

Question 2

Lane Co. instructs its bank, Second Street Bank, to pay $200,000 to Moffett, Inc., also a customer of Second Street Bank. The bank executes the payment order by crediting Moffett's account with the $200,000 and notifying Moffett that the credit was made and is available. In this case:

Accepted Answer

The answer of Lane Co. instructs its bank, Second Street...

Question 3

A depositary bank is any bank handling an item for payment.

Accepted Answer

A depositary bank is specifically the first bank to which an item is transferred for collection, not just any bank handling an item for payment.

Question 4

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:

Accepted Answer

The bank has a duty to honor checks drawn by its customers if there are sufficient funds, and refusal without valid reason can make the bank liable to the account holder, Gail, for wrongful dishonor. Doug cannot sue the bank directly as he is not a party to the contract between Gail and her bank.

Question 5

Barry presents to Wake Bank for deposit in his account a check for $100 made out to him by Richard. Wake Bank provisionally credits Barry's account on Monday. When is payment final?

Accepted Answer

Payment is final when the amount of the check is collected from Richard's bank, as this is when the funds are actually transferred and settled.

Question 6

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

Accepted Answer

First Bank is the depositary bank because it is the first bank to receive the check for deposit after it has been indorsed by the payee, Ann Smith.

Question 7

Congress enacted the Truth in Savings Act which requires all depositary banks to disclose in great detail to consumers the terms and conditions of their deposit accounts.

Accepted Answer

The Truth in Savings Act, enacted in 1991, mandates that depository institutions provide clear and detailed information about the terms and conditions of deposit accounts to consumers.

Question 8

Under Revised Article 4, if a bank pays a postdated instrument prior to its date, it will be a proper debit to the drawer's account, unless the drawer had timely informed the drawee that the check was postdated.

Accepted Answer

Under Revised Article 4 of the Uniform Commercial Code, a bank may charge a customer's account for a postdated check unless the customer has given timely notice to the bank of the postdating, allowing the bank to act accordingly.

Question 9

If a drawer files a stop payment order on a check, he is automatically relieved of liability for the obligation.

Accepted Answer

A stop payment order prevents the bank from paying the check, but it does not relieve the drawer of the underlying obligation to the payee. The drawer may still owe the debt or obligation that the check was intended to satisfy.

Question 10

For how long is a written stop payment order valid?

Accepted Answer

A written stop payment order is typically valid for six months. After this period, it may need to be renewed if the account holder still wishes to stop the payment.

Question 11

Which of the following is true of a collecting bank?

Accepted Answer

A collecting bank acts as an agent or sub-agent for the owner of an item until settlement becomes final, and once settled, the relationship changes to a debtor-creditor relationship.

Question 12

David dies an untimely death in a boating accident two days after writing a check to his landlord. The bank finds out about David's death the day after it happens. When the landlord presents the check to the bank two weeks later, the bank must pay it unless David's heirs object.

Accepted Answer

The answer of David dies an untimely death in a...

Question 13

The Code imposes certain affirmative duties on bank customers and fixes time limits within which they must assert their rights.

Accepted Answer

The Code of Banking Practice often includes provisions that require bank customers to report unauthorized transactions or errors within a specified time frame to protect their rights and ensure timely resolution.

Question 14

A payor bank is required to dishonor an uncertified check that is more than six months old.

Accepted Answer

The answer of A payor bank is required to dishonor...

Question 15

The Electronic Funds Transfer Act governs electronic transfers between financial institutions, between financial institutions and businesses, and between businesses.

Accepted Answer

The Electronic Funds Transfer Act primarily governs electronic transfers involving consumers and financial institutions, not between businesses or solely between financial institutions.

Question 16

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

Accepted Answer

The Competitive Equality Banking Act requires that nonlocal checks clear within four business days to ensure timely processing and availability of funds.

Question 17

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

Accepted Answer

National Bank is an agent of P until the drawee bank pays the check because it is acting on behalf of P to collect the funds from the drawee bank.

Question 18

An association of banks and other payors whose members settle accounts with each other on a daily basis is a:

Accepted Answer

A clearinghouse is an association of banks and other payors whose members settle accounts with each other on a daily basis.

Question 19

A written stop payment order is effective indefinitely.

Accepted Answer

A written stop payment order is typically effective for six months, after which it may need to be renewed.

Question 20

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

Accepted Answer

An oral stop payment order is typically binding on the drawee bank for 14 calendar days, after which a written confirmation is required to extend the stop payment order.

Quiz 27: Bank Deposits, Collections, and Funds Transfers