Chapter 30 Outline

Chapter 30 Outline - Chapter 30 Bank Deposits and...

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Chapter 30 Bank Deposits and Collections Collection of Items: When a person deposits a check in his bank (the depositary bank), the bank credits his account by the amount of the check. This initial crediting is provisional. When the amount of the check has been collected from the payor bank, the credit becomes a final credit. Competitive Equality Banking Act ----- expedited the availability of funds by establishing maximum time periods for which a bank may hold various types of instruments. Under the Act: 1. Cash deposits, wire transfers, government checks, the first $100 of a day’s check deposits, cashier’s checks, and checks deposited in one branch of a depositary institution and drawn on the same or another branch of the same institution must clear by the next business day 2. Local checks must clear within one intervening business day 3. Nonlocal checks must clear in no more than four intervening business days. In some cases, then bank involved is both the depositary bank and the payor bank. Where the depositary and payor banks differ, it is necessary for the item to pass form one to the other, either directly through a clearinghouse or through one or more intermediary banks Clearinghouse is an association, composed of banks or other payors, whose members settle accounts with each other on a daily basis. Intermediary banks are banks other than the depositary payor bank that are involved in the collection process, such as one of the twelve Federal Reserve Banks. Collecting Banks: A collecting bank is any bank, other than the payor bank, handling an item for payment.
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A collecting bank is an agent or subagent of the owner of the item until the settlement becomes final. Once settled, the agency relationship changes to one of debtor-creditor. The effects of this agency rule are that risk of loss remains with the owner and any chargeback go to her, not to the collecting bank. All collecting banks have certain responsibilities and duties in collecting checks and other items. Duty of care is a collecting bank must exercise ordinary care in handling an item transferred to it for collection. Duty to act timely is a collecting bank acts timely in any event if it takes proper action such as forwarding or presenting an item before the “midnight deadline” (is the midnight of the banking day following the banking day on which the bank received the item or notice) following its receipt of the item, notice, or payment. Recognizing that everyone involved will be greatly inconvenienced if an item is not paid. Section 4-19 provides that unless otherwise instructed, a collecting bank in a good faith effort to secure payment may, in the case of a specific item drawn on a payor other than a bank, waive, modify, or extend the time limits, but not in excess of two additional banking days. An item restrictively indorsed with words such as “pay any bank” is locked into the bank
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Chapter 30 Outline - Chapter 30 Bank Deposits and...

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