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Unformatted text preview: Business Law and the Regulation of Business Regulation
Chapter 28: Bank Deposits, Collections, and Fund Transfers and By Richard A. Mann & Barry S. Roberts Topics Covered in this Chapter Topics
I. Bank Deposits and Collections
A. Collection of Items B. Relationship Between Payor Bank and Its Customer II. Electronic Funds Transfers II.
A. Types of Electronic Funds Transfers B. Consumer Funds Transfer C. Wholesale Funds Transfers Collection of Items
Depositary Bank – the bank in which the payee or holder deposits a check for credit. for s Intermediary Bank – a bank, other than the depositary or payor bank, involved in the collection process. involved s Collecting Bank – any bank (other Collecting than the payor bank) handling the item for payment. for
s Credit Credit
Provisional Credit – tentative credit for the deposit of an instrument until final credit is given. credit s Final Credit – payment of the instrument by the payor bank; if the payor bank (drawee) does not pay the check, the depositary bank reverses the provisional credit. provisional
s Credit Transactions Credit
Originator Originator’s Bank Intermediary Bank (if any) Beneficiary’s Bank Beneficiary Collecting Bank Collecting
s s s s Agency – a collecting bank is an agent or subagent of the owner of the check until the settlement becomes final. settlement Duty of Care – a collecting bank must exercise ordinary care in handling an item. ordinary Duty to Act Timely – a collecting bank acts timely if it takes proper action before its midnight deadline (midnight of the next banking day). day). Warranties – customers and collecting banks give warranties on transfer, presentment, and encoding. encoding. Bank Collections Bank
check originally issued to payee $ or account credited or returned check $ or returned check $ or returned check account debited check Depositary Bank (Collecting bank) check Intermediary Bank (Collecting bank) check Payor Bank (Drawee bank) canceled check Drawer Payor Bank Payor
s s Under its contract with the drawer, the payor nder or drawee bank agrees to pay to the payee or his order checks that are issued by the drawer, provided the order is not counterdrawer, manded by a stop payment order and if there manded are sufficient funds in the drawer's account. are Final Payment – occurs when the payor bank does any one of the following: (1)-pays an item in cash; (2)-settles without the right to revoke the settlement; or (3)-makes a provisional settlement and does not properly revoke it. revoke Payor Bank and Customer Payor
s s s The relationship between a payor bank and The its checking account customer is contractual. its Payment of an Item –a payor bank may payor either dishonor and return an item for which the funds in the account are insufficient or pay the item and charge the customer's account even though an overdraft is created. account Stop Payment Orders – an oral stop payment order is binding for fourteen calendar days; a written order is effective for six months and may be renewed in writing. six Payor Bank and Customer Payor
s Bank's Right to Subrogation on Improper Bank's Payment – if a payor bank pays an item over Payment a stop payment order or otherwise in violation of its contract, the payor bank is subrogated to (obtains) the rights of (1)-any holder in due course on the item against the drawer or maker; (2)-the payee or any other holder against the drawer or maker; and (3)-the drawer or maker against the payee or any other holder. other Payor Bank and Customer Payor
s s s Disclosure Requirement – all depositary institutions must disclose in great detail to their consumers the terms and conditions of their deposit account. their Customer’s Death or Incompetence – a bank may pay an item if it does not know of the customer's incompetency or death. the Customer's Duties – the customer must examine bank statements and items carefully and promptly to discover any unauthorized signatures or alterations. signatures Nature and Types of Electronic Funds Transfers Electronic
s s Definition – any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account. institution Purpose – to eliminate the paperwork involved in processing checks and the “float” available to a drawer of a check. available Types of Electronic Funds Transfers Transfers
Automated Teller Machines s Point-of-Sale Systems s Direct Deposits and Withdrawals s Pay-by-Phone Systems s Wholesale Electronic Funds Wholesale Transfers Transfers
s Consumer Funds Transfers
Electronic Fund Transfer Act – provides a basic framework establishing the rights, liabilities, and responsibilities of participants in consumer electronic fund transfers. fund s Financial Institution Responsibility – liable to a consumer for all damage proximately caused by its failure to properly handle an EFT transaction. properly
s Wholesale Funds Transfers Wholesale
s s The movement of funds through the banking The system; excludes all transactions governed by the Electronic Fund Transfer Act. by Payment Order –iinstruction of sender to a nstruction receiving bank to pay, or to cause another bank to pay, a fixed amount of money. bank
– Parties – include originator, sender, receiving Parties bank, originator's bank, beneficiary's bank, beneficiary, and intermediary banks. beneficiary, s Acceptance – rights and obligations that arise as a result of a receiving bank's acceptance of a payment order. acceptance Parties to a Funds Transfer Parties
Example 1 Originator Sender(s) Johnson Co. Johnson Co. Example 2 Johnson Co. Johnson Co. FNB Receiving Bank(s) FNB FNB CB Orginator ’s Bank Beneficiary’s Bank Beneficiary Intermediary Bank FNB FNB West FNB CB West Example 3 Johnson Co. Johnson Co. FNB NB FNB CB NB FNB CB West NB ...
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This note was uploaded on 10/25/2009 for the course LAW 100 taught by Professor Liu during the Spring '09 term at Zhejiang University.
- Spring '09