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ANSWER KEY
Chapter 18 Bank-Depositor Relationship and Cyber-Banking
Opening Case Questions
2. The text tells us, “if an institution collects money from its clients, provides those clients
with checking accounts, issues checkbooks to those clients for use with those accounts, identifies
their clients by signature cards that the clients have voluntarily completed, sends customers
5. The UCC states that when forgery is suspected, the depositor has one year after the
A Question of Ethics
Special Directions to the Instructor: Many teachers will not be comfortable predicting the various
answers that students will provide for the ethical question asked in the Question of Ethics feature in
Questions for Review and Discussion
2. Bank depositors owe a duty to any bank, in which they have checking accounts, to have sufficient
funds on deposit to cover the checks that they write. They must also examine their bank statements and
3. Drawers may order a bank to stop payment on any item that might be payable from their
account(s). The stop payment order must be received in time and in such a manner as to afford the bank
4. The FDIC insures deposits in banks as well as in savings and loan associations. The basic
insurance coverage protects individual bank accounts up to $100,000 and joint accounts for up to an
5. During the bank collection process, banks are described by different terms, depending on their
particular function in a transaction. Sometimes a bank takes a check for deposit. At other times, it pays
6. The depository bank acts as its customer’s agent to collect the money from the payor bank. The
check is sent (sometimes through an intermediary bank) to a collecting bank that presents the check to
the payor bank for payment. If it is honored by the payor bank, the amount will be deducted from the
7. Electronic banking (also called electronic fund transfers or EFTs) uses computers and electronic
technology as a substitute for checks and other banking methods. People can go to automatic teller
machines (ATMs) 24 hours a day to make bank deposits and withdrawals. They can pay bills by phone,
have deposits made directly to their bank accounts, and pay for retail purchases directly from their bank
accounts. Some banks have arrangements for payment by cyber-check, e-check (sometimes called
electronic check conversion), which is a system in which funds are electronically transferred from a
8. The Check 21 Act brings the check-clearing method into the modern age by
the use of electronic check processing. Such processing could not be done prior to
this 2004 law, because of the legal requirement that original checks be presented
to the drawee bank for payment. Under this law, a new negotiable instrument
called a substitute check is used. A substitute check (also called an image
replacement document or IRD) is a paper reproduction of both sides of an original
9. To protect consumers from losses related to substitute checks, the Check 21
Act includes a consumer’s right to claim an expedited credit. This right exists if
the consumer asserts in good faith the following four facts: (1) The bank charged
the consumer’s account for a substitute check that was given to the consumer. (2)
Either the check was not properly charged to the consumer’s account, or the
consumer has a warranty claim with respect to the substitute check. (3) The
consumer su3ered a resulting loss. (4) The production of the original check or a
10. Consumers who use ATMs are entitled to receive a written receipt whenever they use a machine. In
addition, the transaction must appear on the periodic statement sent to the consumer. Banks must
promptly investigate errors pointed out by consumers. A consumer’s liability for the unauthorized use
Cases for Analysis
1. No. The time for notifying a bank of a forged or altered check is one year from the time the
3. No. A written stop-payment order is effective for only six months unless renewed in writing. A
bank is under no obligation to pay a check, other than a certified check, that is presented more than six
months after its date, but it may charge its customer’s accounts for payments made thereafter in good
4. Yes. A bank may continue to pay checks for ten days after the date of death of the drawer even
5. Yes. The bank became accountable for the amount of the item when it retained it beyond midnight
7. No. When a dishonor occurs by mistake, liability is limited to actual damages proved. Since
8. Roberta’s deposit is considered to have been received on Monday. The first $100 must be
END CHAPTER EIGHTEEN
