After reading this chapter, you will be able to answer the following questions: What are the components of a check? What are the differences among the various types of checks? How and where are deposits accepted? When may a bank charge a customer’s account? What are the different types of electronic fund transfers?
Chapter 29 Checks and Electronic Fund Transfers Copyright © 2015 McGrawHill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGrawHill Education Terminology Regarding Check Transactions Draft: Order instrument; one party orders second party to pay money to party listed on instrument Drawer: Party who gives order to pay draft Drawee: Party that must obey drawer’s order to pay draft Payee: Party who receives benefit of drawer’s order; party who receives money from draft Check: Special draft that orders drawee (typically a bank) to pay fixed amount of money on demand 292 Terminology Regarding Check Transactions (Continued) Cashier’s Check: check in which both drawer and drawee are same bank Teller’s Check: Check drawn by one bank and usually drawn on another bank Traveler’s Check: Instrument payable on demand, drawn on/through a bank, designated as a “traveler’s check”, and requires countersignature by person whose signature appears on instrument Money Order: Instrument stating that certain amount of money is to be paid to a particular person (usually in same form as personal check) Certified Check: Check accepted at bank at which it is drawn 293 Terminology Regarding Acceptance of Deposits Depositary Bank: First bank that receives check for payment Payor Bank: Bank on which check drawn; bank ultimately responsible from granting funds for check Collecting Bank: Any bank (except payor bank) that handles check during collection process Intermediary Bank: Any bank (except payor bank and depositary bank) to which check transferred 294 Check Clearing For The 21st Century Act Also known as “Check 21” or “Check Truncation” Act Allows banks to forgo sending original checks as part of collection or return process, and send a “truncated” version instead Instead of original check, bank may send: Substitute check (paper reproduction of original check) By agreement, electronic image of check, along with data from magnetic ink character recognition (MICR) line on original check 295 “Substitute Check” Requirements Contains clear replication of front and back of original paper check Bears MICR line with all information on original check’s MICR line Conforms with generally applicable industry standard for paper stock, dimensions, and other general qualities Is suitable for automated processing in same manner as original paper check 296 When Bank May Charge Customer’s Account “Properly Payable” Rule: Bank may pay instrument only when authorized by drawer, and payment does not violate agreement between bank and customer Wrongful Dishonor: Bank refuses to pay properly payable check; bank incurs liability upon wrongful dishonor Overdraft: If insufficient funds in customer’s account, bank may Dishonor check, or Create overdraft by paying check and charging account amount overdrawn StopPayment Order: Drawer orders bank to not pay check drawn on customer’s account PostDated Check: Customer can postdate check, but must give bank notice of postdate 297 When Bank May Charge Customer’s Account (Continued) “Stale” Check (Definition): Check not presented to bank within six (6) months of its date If payee presents uncertified, stale check to bank, bank not required to pay amount of check If bank pays check in good faith, it may charge drawer’s account 298 Forgeries and Alterations Check Bearing Forged Signature: Generally, drawer not liable for forged check, unless drawer substantially contributed to forgery Check Bearing Forged Endorsement: Neither drawer nor drawer’s bank liable for forged endorsement Altered Check: If unauthorized change modifies obligation of party to instrument, drawer generally not liable for altered amount, unless he/she negligently contributed to alteration 299 Electronic Funds Transfer (Definition): Money transferred by electronic terminal, telephone, or computer 2910 Types of Electronic Funds Transfer (EFT) Systems: Automated Teller Machines (ATMs): Machines connected to bank’s computer located in convenient places, allowing customers to conduct banking transactions without going into bank “PointofSale” System: System that allows consumer to directly transfer funds from bank account to merchant Direct Deposits and Withdrawals: Preauthorized actions performed on customer’s account through electronic terminal “PaybyTelephone” System: Merchant allows customers to use telephone to make payments/transfer funds Online Banking: Banks grants customers electronic access to account data to perform banking tasks (Example: Online transfer of funds) 2911 EMoney and Online Banking “Digital Cash”: Money stored electronically (microchips, magnetic strips, other computer media) “StoredValue” Cards: Plastic cards with magnetic strips (similar to those on credit cards/ATM cards) containing data regarding card value “Smart Cards”: Cards that are the same size as regular check and ATM cards, but that contain a microchip (instead of a magnetic strip), for storing larger amounts of data 2912 The Right to Financial Privacy Act Financial institutions, such as banks, may not give a federal agency information regarding a person’s finances without that person’s explicit consent or a warrant 2913 ... negligently contributed to alteration 299 Electronic Funds Transfer (Definition): Money transferred by electronic terminal, telephone, or computer 2910 Types of Electronic Funds Transfer (EFT) Systems:... to make payments/transfer funds Online Banking: Banks grants customers electronic access to account data to perform banking tasks (Example: Online transfer of funds) 2911 EMoney and Online Banking... pay fixed amount of money on demand 292 Terminology Regarding Check Transactions (Continued) Cashier’s Check: check in which both drawer and drawee are same bank Teller’s Check: Check drawn by one bank and usually drawn on another