Chapter 30

Chapter 30 - Chapter 30: Chapter Bank Deposits,...

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Unformatted text preview: Chapter 30: Chapter Bank Deposits, Collections, and Fund Transfers and BUL 3350 - Chapter 30 1 Topics Covered in this Chapter 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 BUL 3350 - Chapter 30 2 Collection of Items Collection Depositary Bank – the bank in which the payee or holder deposits a check for credit. credit. Intermediary Bank – a bank, other than Intermediary the depositary or payor bank, involved in the collection process. the Collecting Bank – any bank (other than Collecting the payor bank) handling the item for payment. payment. BUL 3350 - Chapter 30 3 Credit Provisional Credit – tentative credit for Provisional the deposit of an instrument until final credit is given. credit Final Credit – payment of the instrument Final by the payor bank; if the payor bank (drawee) does not pay the check, the depositary bank reverses the provisional credit. credit. BUL 3350 - Chapter 30 4 Credit Transactions Originator Originator’s Bank Intermediary Bank (if any) Beneficiary’s Bank Beneficiary BUL 3350 - Chapter 30 5 Collecting Bank Agency – a collecting bank is an agent or Agency subagent of the owner of the check until the settlement becomes final. settlement Duty of Care – a collecting bank must exercise Duty ordinary care in handling an item. ordinary Duty to Act Timely – a collecting bank acts Duty timely if it takes proper action before its midnight deadline (midnight of the next banking day). deadline Warranties – customers and collecting banks give warranties on transfer, presentment, and encoding. encoding. BUL 3350 - Chapter 30 6 Bank Collections Holder 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) Payor Bank (Drawee bank) check Drawer BUL 3350 - Chapter 30 canceled check 7 Payor Bank Under its contract with the drawer, the payor or nder drawee bank agrees to pay to the payee or his order checks that are issued by the drawer, provided the order is not countermanded by a stop payment order and provided there are sufficient funds in the drawer's account. sufficient Final Payment – occurs when the payor bank Final 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. settlement BUL 3350 - Chapter 30 8 Payor Bank and Customer The relationship between a payor bank and its The checking account customer is contractual. checking Payment of an Item –a payor bank may either Payment payor 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. created. A substitute check is a paper reproduction of the substitute original check that is suitable for automated processing in the same manner as the original check. Stop Payment Orders – an oral stop payment order is Stop binding for fourteen calendar days; a written order is effective for six months and may be renewed in writing. effective BUL 3350 - Chapter 30 9 Payor Bank and Customer Bank's Right to Subrogation on Improper Bank's Payment – if a payor bank pays an item over 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 BUL 3350 - Chapter 30 10 Payor Bank and Customer Disclosure Requirement – all depositary Disclosure institutions must disclose in great detail to their consumers the terms and conditions of their deposit account. deposit Customer’s Death or Incompetence – a bank Customer’s may pay an item if it does not know of the customer's incompetency or death. customer's Customer's Duties – the customer must Customer's examine bank statements and items carefully and promptly to discover any unauthorized signatures or alterations. signatures BUL 3350 - Chapter 30 11 Nature and Types of Nature Electronic Funds Transfers Electronic 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 Purpose in processing checks and the “float” available to a drawer of a check. to BUL 3350 - Chapter 30 12 Types of Electronic Funds Transfers Automated Teller Machines Point-of-Sale Systems Direct Deposits and Withdrawals Pay-by-Phone Systems Wholesale Electronic Funds Transfers BUL 3350 - Chapter 30 13 Consumer Funds Transfers Consumer Electronic Fund Transfer Act – provides a basic framework establishing the rights, liabilities, and responsibilities of participants in consumer electronic fund transfers. fund Financial Institution Responsibility – Financial liable to a consumer for all damage proximately caused by its failure to properly handle an EFT transaction. properly BUL 3350 - Chapter 30 14 Wholesale Funds Transfers The movement of funds through the banking The system; excludes all transactions governed by the Electronic Fund Transfer Act. the Payment Order –iinstruction of sender to a nstruction Payment receiving bank to pay, or to cause another bank to pay, a fixed amount of money. bank • Parties – include originator, sender, receiving bank, Parties originator's bank, beneficiary's bank, beneficiary, and intermediary banks. and Acceptance – rights and obligations that arise Acceptance as a result of a receiving bank's acceptance of a payment order. payment BUL 3350 - Chapter 30 15 Parties to a Funds Transfer 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 BUL 3350 - Chapter 30 Example 3 Johnson Co. Johnson Co. FNB NB FNB CB NB FNB CB West NB 16 FNB CB West - ...
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