Chapter 21 Checks, Banking System and E-Money

2  On what type of check does a bank serve as both the drawer and the drawee?  When may a bank property dishonor a customer’s check without liability?  Under what circumstances might a bank not be liable for payment of a check with a forged signature?  What is E-Money? How is it used and and stored?  On what type of check does a bank serve as both the drawer and the drawee?  When may a bank property dishonor a customer’s check without liability?  Under what circumstances might a bank not be liable for payment of a check with a forged signature?  What is E-Money? How is it used and and stored? Learning Objectives

3 Checks  Special type of draft by maker (drawer) drawn on a bank (drawee) ordering bank to pay third party (payee). Cashier’s Check—bank is both drawer and drawee. Traveler’s Check—payable on demand, payable by a financial institution, designated as a traveler’s check. Certified Check—accepted in writing by drawee bank.  Special type of draft by maker (drawer) drawn on a bank (drawee) ordering bank to pay third party (payee). Cashier’s Check—bank is both drawer and drawee. Traveler’s Check—payable on demand, payable by a financial institution, designated as a traveler’s check. Certified Check—accepted in writing by drawee bank.

4 Bank’s Duties  Drawee has a legal duty to honor Drawer’s checks. If it wrongfully dishonors a check, it is liable for damages.  Overdrafts  Postdated Checks (Notice required)  State Checks (six months)  Stop-Payment Orders  Drawee has a legal duty to honor Drawer’s checks. If it wrongfully dishonors a check, it is liable for damages.  Overdrafts  Postdated Checks (Notice required)  State Checks (six months)  Stop-Payment Orders

5 Bank’s Duties  Death or Incompetence of Customer  Forged Drawers’ Signatures General Rule—no legal effect Customer Negligence—bank normally not liable. Timely Examination of Statements by Customer Time Limit for Bank’s Liability  Death or Incompetence of Customer  Forged Drawers’ Signatures General Rule—no legal effect Customer Negligence—bank normally not liable. Timely Examination of Statements by Customer Time Limit for Bank’s Liability

6 Bank’s Duties  Forged Instruments Bank must recredit customer’s account if payment made on forged instrument.  Altered Checks  Bank has a Duty to Accept Deposits Availability Schedule for Deposited Checks Collection Process (local and Federal Reserve)  Forged Instruments Bank must recredit customer’s account if payment made on forged instrument.  Altered Checks  Bank has a Duty to Accept Deposits Availability Schedule for Deposited Checks Collection Process (local and Federal Reserve)

7 Electronic Fund Transfers  EFT is a transfer of funds via the use electronic means  Types of EFT systems: Automated Teller Machine Point of Sale (debit card) Direct Deposit and Withdrawal Pay by Telephone Error Resolution and Damages  Commercial Transfers  EFT is a transfer of funds via the use electronic means  Types of EFT systems: Automated Teller Machine Point of Sale (debit card) Direct Deposit and Withdrawal Pay by Telephone Error Resolution and Damages  Commercial Transfers

8 E-Money  Stored-Value Cards (pre-paid cards for use with long distance, cellular and library copy machines)  Smart Cards— can authenticate the validity of transactions with digital signatures. Deposit Insurance Legal Protection  Privacy Protection  Stored-Value Cards (pre-paid cards for use with long distance, cellular and library copy machines)  Smart Cards— can authenticate the validity of transactions with digital signatures. Deposit Insurance Legal Protection  Privacy Protection