Negotiable Instruments and Check Processing Flashcards
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Read the first 6 Negotiable Instruments and Check Processing flashcards as text
Which federal law governs the check clearing process and establishes the rules for substitute checks in the US?
Answer: Check Clearing for the 21st Century Act (Check 21)
Check 21, enacted in 2003, allows banks to process checks electronically and legally use substitute checks (IRDs) instead of original paper checks.
A check that has been signed on the back by the payee to transfer it to another party is called a:
Answer: Endorsed check
Endorsing a check means the payee signs the back to authorize payment or transfer, with blank, restrictive, or special endorsement types available.
What is a 'restrictive endorsement' on a check?
Answer: Writing 'For Deposit Only' with your account number
A restrictive endorsement limits how the check can be used, typically by writing 'For Deposit Only' followed by an account number to prevent cashing.
Under the Expedited Funds Availability Act (Regulation CC), how quickly must banks make funds from local checks available?
Answer: Next business day
Regulation CC generally requires that funds from local checks be made available by the next business day after the banking day of deposit.
A check drawn on the bank's own funds and signed by a bank officer is called a:
Answer: Cashier's check
A cashier's check is issued by the bank itself, drawn on bank funds, making it a guaranteed form of payment more secure than a personal check.
What does it mean when a check is 'postdated'?
Answer: The check bears a future date and should not be processed before that date
A postdated check carries a future date, and the payer intends it not to be cashed until that date arrives, though banks may process it earlier.