COPYRIGHT © 2010 South-Western/Cengage Learning.

Who’s Who Despositary Bank – the first to take check. Payor Bank – the bank that pays the issuer’s check. Intermediary Bank – any bank that handles a check during the collection process, except the depositary or payor bank. Collecting Bank -- any bank that handles a check during the collection process, except the payor bank. Presenting Bank – a bank that submits a check to the payor bank.

COPYRIGHT © 2010 South-Western/Cengage Learning. Bank’s Duty to Provide Information A bank is not required to provide a monthly statement, but most do. A statement (if provided) must disclose: – Interest rate paid – Amount of interest earned – Fees imposed by the bank – The number of days covered by the statement When an account is opened (and in ads), the bank must disclose: – Interest rate paid – How long this rate will be in effect – Requirements to earn the advertised rate – Fees or penalties imposed by the bank

COPYRIGHT © 2010 South-Western/Cengage Learning. The Bank’s Duty to Pay A bank must pay a check if the check is authorized by the customer and complies with the terms of the checking account agreement. A bank is not required to pay a check on an overdrawn account, but may choose to do so. It is then allowed to either repay itself out of the next deposit or demand immediate payment of the overdraft.

COPYRIGHT © 2010 South-Western/Cengage Learning. Wrongful Dishonor If a bank violates its duty and wrongfully dishonors an authorized check, it is liable to the customer for all actual and consequential damages.

COPYRIGHT © 2010 South-Western/Cengage Learning. Difficult Situations for a Bank The Death of a Customer – Bank may continue to pay checks for ten days after it learns of the death, unless it receives a stop payment order from someone claiming an interest. Incompetent Customers – Once notified that a court has found a customer to be incompetent, the bank is liable if it pays the customer’s checks.

COPYRIGHT © 2010 South-Western/Cengage Learning. Invalid Instruments Forgery – If a bank pays when the issuer’s name is forged, it must recredit the issuer’s account. Alteration – If a check has been altered, the customer is liable only for the original terms of the check, and the bank is liable for the rest. Completion – If an incomplete check is later filled in by someone other than the original issuer, the bank is not liable unless it was on notice that the completion was improper.

COPYRIGHT © 2010 South-Western/Cengage Learning. Dating on Checks Stale Checks – A bank is not required to pay checks that are presented more than six months after their date, but it is not liable if it does pay. Post-dated Checks – A bank is not liable for paying a post-dated check unless the customer has notified the bank in advance that a post-dated check is coming.

COPYRIGHT © 2010 South-Western/Cengage Learning. Stop Payment Orders As a general rule, if a bank pays a check over a stop payment order, it is liable to the customer for the loss he suffers. The “bank is subrogated to” the rights of the parties, which means that the bank can substitute for, or take the place of, either party.

COPYRIGHT © 2010 South-Western/Cengage Learning. Substitute Checks Congress recently passed the Check 21 Act, which allows a bank to digitally reproduce a check so that it can be processed electronically, rather than transported by plane, truck or train. At any point along the processing of a digital check, it can be printed, creating a substitute check which is legally the same as the original check.

COPYRIGHT © 2010 South-Western/Cengage Learning. Expedited Funds Availability Act In theory, Check 21 Act should make funds available in your account more quickly, but does not regulate how soon banks must make funds available. That issue is controlled by the Expedited Funds Availability Act. Because a bank is at greater risk of loss when a customer withdraws cash, he generally can only withdraw the first $100 in cash on the next business day after depositing a check. He can withdraw $400 more in cash by 5:00 p.m. on the same day that the funds are available for check writing.

COPYRIGHT © 2010 South-Western/Cengage Learning. Electronic Banking Today’s consumers have options for banking that were barely imagined a generation ago: – Automatic Teller Machines (ATMs) that dispense cash, allow transfers and accept deposits – Point of Sale terminals that allow the use of debit cards (deducting the funds directly from a checking account) – Automatic deposit systems – Services that allow bills to be paid over the telephone lines

COPYRIGHT © 2010 South-Western/Cengage Learning. Provisions of the Electronic Fund Transfer Act of 1978 Employers may require all employees to accept payment by electronic transfer (direct deposit), but may not require that it go to a particular bank. Electronic fund transfer cards (ATM, debit, etc.) sent without a customer’s request must be invalid until the consumer activates it.

COPYRIGHT © 2010 South-Western/Cengage Learning. Electronic Fund Transfer Act (cont’d) Documentation of electronic transfers must be provided both at the ATM and in monthly or quarterly statements. Preauthorized transfers (such as an automatic mortgage payment) must be authorized in writing. Errors – If reported within 60 days, a bank must investigate an error within the next 10 days or provisionally credit the account until the investigation can take place.

COPYRIGHT © 2010 South-Western/Cengage Learning. Electronic Fund Transfer Act (cont’d) Consumer Liability for Unauthorized Transactions (stolen ATM card) – If reported within 2 days of theft: consumer liable for $50, bank liable for the rest. – If more than 2 days, but within 60 days of theft: consumer liable for up to $500. – If not reported within 60 days, consumer is liable for the full amount of loss. Bank’s Liability – If a bank fails to make an authorized electronic fund transfer, it is liable for damages caused by the nonpayment.

COPYRIGHT © 2010 South-Western/Cengage Learning. Electronic Fund Transfer Act (cont’d) System Malfunctions – If a payment cannot be made due to a system malfunction, the obligation is suspended until the malfunction is repaired or the intended recipient has asked, in writing, for a non- electronic payment. Disclosure – The provisions of the EFTA must be disclosed in clear language to a consumer opening an account with electronic fund transfer capability.

COPYRIGHT © 2010 South-Western/Cengage Learning. Wire Transfers A wire transfer is a type of payment order that “pushes” money out of the issuer’s account into the payee’s. UCC Article 4A governs nonconsumer wire transfers. The originator is the person who sends the payment order; the beneficiary receives the payment order.

COPYRIGHT © 2010 South-Western/Cengage Learning. Bank Errors Bank Sends the Wrong Amount – Bank is liable when too much money is sent; it may try to recover from recipient. Bank Sends Money to the Wrong Person – Bank is liable when money is sent to the wrong person; it may try to recover from recipient. – If bank sends money to wrong account, but that account number was given by the originator, the bank may not be liable.

COPYRIGHT © 2010 South-Western/Cengage Learning. Privacy Financial institutions must disclose to consumers any non-public information they wish to reveal to third parties. A financial institution cannot disclose this private information if the consumer opts out (or denies permission). A small number of states require an “opt-in” standard, which means that a financial institution cannot divulge private data unless the consumer affirmatively grants permission.