Study Questions

Negotiation of checks - is one of the primary responsibilities of all tellers. It is also an area that causes great concern to most bank 'Loss Prevention' departments. This concern is based on the chance that the teller might 'pay' or 'cash' a check that should not have been negotiated at all. The text lists those reasons - which include signatures, endorsements (indorsements), date, etc.

It is a concern because - once a check is 'payed' (and in this case - not 'cashed') - any problems with the check that would cause it NOT to be negotiable - become the banks problems - and may result in a loss to the bank. This can occur for a number of reasons - including forged signature of the maker or endorser - stale dated, etc.

Even though a bank has recourse to the customer who is 'cashing' a check (drawn on another institution) - that recourse is only practical IF the customer has sufficient funds available to offset the amount of the 'cashed' check in the event of its return.

Stop payments: Interesting concept - left out of text - YOU might need to know something about this area. Dilemma: 'Bank' does NOT need to know why stop payment is being placed - IN fact - probably doesn't WANT to know why - or liability for stop payment changes. Drawer or Maker is responsible for validity of stop payment. Can be placed on any type of check for VALID reasons. However, if stop payment is placed - drawer assumes liability to prove the validity of the stop payment - this INCLUDES - Cashiers Checks.

Always assume - that a Cashiers Check cannot be "stop payed" - but it can. However, the drawee Bank assumes responsibility for checks stopped AND it may in fact have liability for checks held by "holders in due course" (not covered by text). A "Holder in Due Course" - is someone who accepts any negotiable instrument in "good faith" - for a just debt - and without knowledge that the instrument may not have clear title.

Example: Alex buys a cashiers check and has it made payable to Linda. Linda HAS NOT endorsed the check and - looses the cashiers check on the way to the bank. Larry finds it. He signs Linda's name to it. He then makes a purchase from Tom and uses the cashiers check to pay Tom. Tom takes the Cashiers check to his bank and deposits it. What happens OR can happen to the negotiability of this check? 1. Linda, knowing it is lost - does nothing since she 'knows' that a cashiers check is "just like cash" - assumes she is just out the money. OR 2. Linda, knowing it is lost - appeals to Alex to go to his bank and have it reissued.

Bank, trying to accommodate customers - has affidavits of fact completed and reissues check to Linda - before the check has time to go through processing channels. Bank receives check as in-clearing item - now has a dilemma. It can return the check to the bank of first deposit (Tom's Bank) as Stop Payed. It does so - at risk - depending on the rest of the facts of this case. Since Tom took the check in "good faith" he will be deemed a "holder in good faith" and will be entitled to the funds - even though the Linda's endorsement was forged.

The bank that issued the check (and the stop payment) now must recover its funds (if it can) from Alex/Linda - because it was Linda's carelessness that caused the problem in the first place. This is all - very deep - and the reason that most banks balk at issuing Stop payments on Cashiers checks - OR require 'indemnity bonds' before they reissue.

INTERNET Check Processing

As new as our text is - there is no mention of Internet Check Processing. This takes the payment system to a new height in both convenience and security concerns. Banks have a responsibility to make sure that the maker and payee are both protected in a check transaction. With a purely electronic transaction, the bank must 'trust' someone else to make sure that the transaction is real and appropriate. Internet shopping - EBay - have all created a new 'need' for enhancements to the payment system. Certainly, credit cards can and are used regularly for Internet shopping - but not everyone has a credit card or wants to use it. Review some of the sites below.

The 'Situations' described at the beginning of this chapter - are interesting examples - of how the law AND the bank's policies have to be used together to determine the tellers actions. Situation 2 - is an interesting challenge - since a customer has a right to stop pay a check. On the other hand - he has purchased an item - and the seller has a right to the sales price. In the 'old' days - a bank's stop payment form would contain a space for "Reason" - that is why the accountholder wanted the stop payment. Today, few banks want to know - since often the only way the bank would place a stop payment - is if the accountholder 'tells less than the truth' about the reason why - it is better (for the bank) NOT to know why.

Paying vs Cashing

Many customers go to the bank to 'cash' a check. The difference between 'Cashing' and 'Paying' is NOT something that the customer - cares about. The difference is is subtle - and has to do with where the check originated. If the customer - wrote the check - the bank is 'paying' the check. That is, it is effectively (or actually) reducing the balance in the customers account by the amount of the check the customer wrote. The concept of 'paying' a check also includes the customer who wants to 'cash' a check drawn on another accountholder of the same bank. Once a check is 'payed' the bank has no recourse if somehow that check turns out to be nonnegotiable (NSF, stop payment, stale dated, etc.)

If the customer is 'negotiating' a check written by someone else - drawn on ANOTHER bank - the customer is trying to 'cash' the check - and the customer's bank will do so ONLY if the maker of the check is known or the customer has sufficient balances to offset the amount of the check - should it be returned from the maker's bank. In this case the bank is willing to 'cash' the check as an accommodation to their accountholder and should the check be returned from the maker's bank - the funds will be taken from the customers account and that check returned to the customer for further action.

Electronic Presentment - This is a new development in the ongoing set of changes affecting checks. If you have been to a merchant recently - written a check - handed the check to the cashier - only to have them run it through their 'magic' machine and then return the check to you - well - you've experience Electronic Presentment. This is a bit different than that described in the text - but it is just the next step. Banks do NOT want to process paper. It is more expensive to process and store and either return to the customer or safekeep. All they really want is to know how much and from who - to deduct the amount of the check.

Electronic Presentment - works similar to the debit card - in that once the check is scanned at the merchant - it is immediately processed through an on-line network and the money is taken from your account. The cashier returns the check to you - as a receipt - and for you to deduct from your checking balance.

ASSIGNMENT:

There is NO specific assignment for this session.