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Exam 28: Banking in the Digital Age

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Question 31

True/False

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Financial institutions that exchange digital images of checks must also send the original paper checks.

A) True
B) False

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Question 32

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Brendan signs a check "pay to the order of City 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. Like most checks, this check is​

A) ​a type of draft.
B) ​not a substitute for cash.
C) ​a nonnegotiable instrument.
D) ​a one-party instrument.

E) A) and D)
F) A) and B)

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Question 33

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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 the most of the loss due to the theft? Explain.

When a customer deposits cash into a checking account, he or she becomes a debtor for the amount deposited.

The Federal Reserve System acts as a clearinghouse where banks exchange checks.

Any local check deposited must be available for withdrawal by check or as cash within one business day from the date of deposit.

Fact Pattern 28-1 Kelly takes her car to Auto Repair Service, which repairs the car and bills Kelly for $500. She writes out a check drawn on Choice Bank, but later, believing that Auto Repair did not fix the car properly, issues a stop-payment order. -Refer to Fact Pattern 28-1. Choice​

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​

Stored-value cards can be used to buy goods and services offered by the cards' issuer.

A bank that pays a customer's check bearing a forged indorsement is obligated to recredit the customer's account.

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's 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?

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

Any failure of a bank to honor a check because it would create an overdraft is a wrongful dishonor.

Check 21 applies in only half of the states.

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​

On Monday, Ellery deposits in her account at Fiscal Bank a local check for $500. After 5:00 p.m. on Friday, from these funds, Ellery can withdraw no more than​

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​

When a bank pays a check on which the drawer's signature is forged, generally the customer suffers the loss.

A customer can escape liability for failing to notify the bank of forged or altered checks when the customer can prove that the bank was negligent.

When receiving a stale check for payment, a bank has no option but to refuse to pay the check.