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CHAPTER 15: BANKING IN THE DIGITAL AGE 11
whole or in part.
Home Loan Bank that presents a check to the depositary bank for payment. A depositary bank shall, however,
make $400 of these funds available for withdrawal by cash or similar means not later than 5:00 p.m. on the
business day on which the funds are available under paragraphs (b), (c), or (f) of this section. This $400 is in
addition to the $100 available under s 229.10(c)(1)(vii).
(2) Deposited by a check drawn on or payable at or through a paying bank not located in the same state as
the depositary bank.
(f) Deposits at nonproprietary ATMs. A depositary bank shall make funds deposited in an account at a
PART 229—AVAILABILITY OF FUNDS AND COLLECTION OF CHECKS
Authority: 12 U.S.C. 4001 et seq.
Source: 53 FR 19433, May 27, 1988; 57 FR 36598, 36600, Aug. 14, 1992, unless otherwise noted.
• The minimum balance required to open an account and to be paid interest.
• The rate of interest, if any, stated in terms of the annual percentage yield on the account.
• How interest is calculated.
• The amount of fees, charges, and penalties, and how they are calculated.
The following is part of Regulation DD (12 C.F.R. Part 230), which sets out the methods for the payment
of interest on the balances in bank accounts.
12 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
CHAPTER II—FEDERAL RESERVE SYSTEM
SUBCHAPTER A—BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
PART 230—TRUTH IN SAVINGS (REGULATION DD)
§ 230.7 Payment of interest.
year a daily rate of 1/366 of the interest rate may be used.
(2) Determination of minimum balance to earn interest. An institution shall use the same method to determine
any minimum balance required to earn interest as it uses to determine the balance on which interest is
calculated. An institution may use an additional method that is unequivocally beneficial to the consumer.
implementing Regulation CC (12 CFR part 229). Interest shall accrue until the day funds are withdrawn.
PART 230—TRUTH IN SAVINGS (REGULATION DD)
Source: 57 FR 43376, Sept. 21, 1992, unless otherwise noted.
These include depositary bank, collecting bank, payor bank, and intermediary bank.
2. Banks May Have More Than One Role
Any bank can be a depositary bank, a collecting bank, a payor bank, and an intermediary bank.
CHAPTER 15: BANKING IN THE DIGITAL AGE 13
b. Deferred Posting after Cutoff Hour
Deferred posting is permitted [UCC 4–108].
& Slavic Federal Credit Union (PSFCU). He received and deposited two checks—one for $9,800 issued by a
credit union in Florida and, a few days later, a check for $45,000 drawn on a Canadian bank. PSFCU told him
that payment on the first check had been “stopped” but did not disclose that the check was fraudulent.
PSFCU issued a provisional credit for the Canadian check, which an employee told Rosol was “collected and
in his account.” After Rosol transferred $36,240 to a party in Japan and $4,500 to someone in Great Britain,
of a check is provisional until the final settlement. The credit to Rosol’s account for the checks was thus
provisional between the time of their deposit and the time of their dishonor, and PSFCU had a “right of
recoupment” for the funds that Rosol transferred. But Rosol contended that he would not have transferred
those funds if PSFCU had told him the first check was fraudulent. The court reasoned that this could bear on
the question of whether he had acted reasonably in relying on what he was told about the second check, and
Notes and Questions
What could Rosol have done to avoid the loss for the transferred funds? Discuss. The first step that
Rosol might have taken to avoid the loss for the transferred funds would have been to ignore the e-mail
message “from someone he did not know” that promised a large fee for little effort. Ignoring the offer would
14 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
What crime has most likely been committed in this case, and who were its victims? The crime of
fraud is the most obvious illegal activity in this set of facts. As pointed out in earlier chapters, fraud is any
misrepresentation knowingly made with the intention of deceiving another and on which a reasonable person
would and does rely to his or her detriment. Cyber fraud is fraud committed over the Internet. If Rosol was a
victim—an almost willing victim—he was a direct target of cyber fraud. This crime consisted of the e-mail
QUESTION IN CASE 15.3
In what ways was Rosol’s apparent motive similar to the most common reason that ethical
problems occur in business? Rosol’s motive for his conduct in this case was to realize the 10 percent fee
on deposited checks and transferred funds—quick, easy profits. The discussion of short-run profit
ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”
QUESTION IN CASE 15.3
for the amounts.
5. How the Federal Reserve System Clears Checks
The text explains that the Federal Reserve System simplifies the check-collection process.
whole or in part.
D. CHECK CLEARING AND THE CHECK 21 ACT
check).
2. Faster Access to Funds
Banks can exchange checks digitally (which speeds collection). As check-processing speeds up,
the Federal Reserve Board will revise the availability schedule for funds from deposited checks to
• Automated teller machines. To initiate a transaction, a consumer uses an access card and a
personal identification number (PIN).
• Point-of-sale systems. These systems also sue access cards.
• Systems handling direct deposits and withdrawals of funds.
Telephone transfers are covered only if they are made under a prearranged plan involving periodic
transfers.
ENHANCING YOUR LECTURE—
criminals make illegitimate funds appear legitimate. Money laundering has been going on for many years, but
in the past criminals had to physically transport the cash. The advantages of digital cash—in particular the
fact that it can be exchanged anonymously—have provided an avenue for more effective money laundering
(sometimes referred to as cyberlaundering). Today, terrorist groups and criminal enterprises can use two
types of electronic cash to transfer funds and evade detection by law enforcement: prepaid ATM cards and
REPORTING REQUIREMENTS FOR CASH TRANSFERS
Federal law requires reporting of any financial transactions or funds transfers that involve more than
amount that could be laundered through more traditional means, such as wiring funds through Western
Union. This limitation also deterred terrorist groups from transferring large amounts of cash to various
locations or cells for the purpose of funding terrorist activities.
ADVANTAGES OF PREPAID ATM CARDS
Prepaid ATM cards, in contrast, are not linked to a bank account like a regular debit or ATM card. They
are essentially a stored-value card in which the purchaser pays a specific amount and that amount is loaded
onto the card. The user can then access those funds from anywhere in the world. These cards are convenient
for students or travelers because a person does not need to show identification or have a bank account to
smuggle cash past customs agents.
MONEY LAUNDERING THROUGH VIRTUAL GAMING CURRENCY
The dramatic increase in virtual gaming also opens the door up for cyberlaundering. Online gaming has
selling them on online auction sites. (Gamers could always do the reverse and use real cash or credit cards to
add monies to their online accounts.) Soon, Web sites developed at which gamers could exchange virtual
currency. Then, in 2006, the makers of Entropia Universe—a giant in the virtual gaming industry that
transacted over $165 million of business in 2005—began offering real-world ATM cards.
whole or in part.
to report it to the government. In addition, these assets can be purchased, transferred, and accessed from
any place in the world and are completely unregulated and unreported. Once the funds are withdrawn from a
Should only banks and regulated financial institutions be allowed to issue ATM cards? Why or
why not? How else might the government regulate digital funds to reduce the potential for
cyberlaundering?
ADDITIONAL BACKGROUND—
Electronic Fund Transfer
SUBCHAPTER VI—ELECTRONIC FUND TRANSFERS
§ 1693a. Definitions
As used in this subchapter—
an account. Such term includes but is not limited to, point-of-sale transfers, automated teller machine transac-
tions, direct deposits or withdrawals of funds, and transfers initiated by telephone.
* * * *
transfers, the fees, identification of the terminals, names of third parties involved, and an
address and phone number for inquiries and error notices.
18 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
not tell the bank until after the second day; or (3) unlimited amounts—if notice is not within
sixty days after transfer appears on customer’s statement.
• A customer has sixty days to notify the institution after a transfer appears on the customer’s
statement, after which the institution has ten days to respond.
• A transfer initiated by a person who has no actual authority to initiate the transfer.
• A transfer in which the consumer receives no benefit.
Unauthorized Electronic Fund Transfer
Under some circumstances, a customer can be liable for an unauthorized electronic fund transfer. In
other circumstances, a financial institution may be liable. The Electronic Fund Transfer Act of1978 provides
the following definition for unauthorized electronic fund transfer at 15 U.S.C. Section 1693a(11).
(11) the term “unauthorized electronic fund transfer” means an electronic fund transfer from a consumer’s
account initiated by a person other than the consumer without actual authority to initiate such transfer and
from which the consumer receives no benefit, but the term does not include any electronic fund transfer (A)
initiated by a person other than the consumer who was furnished with the card, code, or other means of
CHAPTER 15: BANKING IN THE DIGITAL AGE 19
whole or in part.
3. Violations and Damages
imprisonment of up to ten years. An institution’s failure to comply with the EFTA can result in liability
for actual damages, court costs, attorneys’ fees, and punitive damages.
C. COMMERCIAL FUND TRANSFERS
UCC Article 4A, which most states have adopted, covers transactions not subject to the EFTA or other
A. FORMS OF E-MONEY CARDS
• Stored-value cards are plastic cards embossed with magnetic stripes containing magnetically
encoded data. Using this card, a person buys specific goods and services offered by the issuer.
ENHANCING YOUR LECTURE—
SMART CARDS
balances to its bank by means of telephone links.
There is no actual “cash,” or “legal tender,” in a smart card, just as there is no actual currency in a
checkbook. Instead, the balance of funds recorded on a smart card represents a balance of funds deposited
with a financial institution.
smart cards can also authenticate the validity of transactions. Retailers can program electronic cash registers
20 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
Normally, all depository institutions—including commercial banks and savings and loan associations—
offer $100,000 of federally backed insurance for deposits. The Federal Deposit Insurance Corporation (FDIC)
offers this insurance.
Some laws that extend to e-money and e-money transactions. The Federal Trade Commission Act of
19141 prohibits unfair or deceptive practices in, or affecting, commerce. Under this law, e-money issuers who
misrepresent the value of their products or make other misrepresentations on which e-money consumers rely
to their detriment may be liable for engaging in deceptive practices.
Even without legal protection, e-money payment systems could be safer than cash and checks.
Encryption (encoding) may solve some of the problems associated with e-money and with unprotected online
exchanges. For example, the theft of encrypted e-money would be a waste of time because without the code
a thief could not use the money. The failure of a merchant to give a customer a receipt may not matter if the
e-money payment system provides proof of a transaction. Digital signatures could eliminate the problems
because smart cards and other devices allow payments to travel through cyberspace quickly and without
encountering any of the barriers that otherwise could discourage trade across national boundaries.
2. Businesspersons must realize that there are some disadvantages to using e-money. For example,
counterfeiting and theft are potential problems with digital cash, just as they are with physical currency. There
115 U.S.C. Sections 41–58.
