CBT Negotiable Instruments and Check Processing 2 — Questions and Answers
Question 1: When a check is returned due to insufficient funds (NSF), who is typically charged the NSF fee?
- The bank that accepted the deposit
- The account holder who wrote the check (Correct answer)
- The payee who deposited the check
- The Federal Reserve
Correct answer: The account holder who wrote the check
The NSF fee is charged to the account holder whose account lacked sufficient funds to cover the check they wrote.
Question 2: What is a 'stale-dated' check?
- A check written in pencil
- A check older than 6 months that a bank may refuse to honor (Correct answer)
- A check that has been washed to alter the amount
- A check with an illegible signature
Correct answer: A check older than 6 months that a bank may refuse to honor
Under UCC Article 3, a bank is not obligated to pay a check presented more than six months after its date, as it is considered stale-dated.
Question 3: Which of the following is a MICR line element found at the bottom of a US check?
- Payee name
- Check amount written in words
- Routing/transit number (Correct answer)
- Memo line
Correct answer: Routing/transit number
The MICR (Magnetic Ink Character Recognition) line contains the routing/transit number, account number, and check number for automated processing.
Question 4: A teller receives a check made payable to 'John Smith OR Mary Smith.' Who may endorse and cash this check?
- Only John Smith
- Only Mary Smith
- Either John or Mary Smith alone (Correct answer)
- Both John and Mary Smith must endorse it together
Correct answer: Either John or Mary Smith alone
When a check uses 'OR' between payees, either person may endorse and negotiate it independently without the other's signature.
Question 5: What is a 'certified check'?
- A check issued by the bank from its own funds
- A personal check guaranteed by the bank after verifying and setting aside funds (Correct answer)
- A check used for international wire transfers
- A check printed on security paper
Correct answer: A personal check guaranteed by the bank after verifying and setting aside funds
A certified check is a personal check that the bank has verified and guaranteed by setting aside the check amount from the customer's account.
Question 6: Under Regulation CC, which type of deposit is typically subject to an extended hold of up to 7 business days?
- A payroll check from a local employer
- A check deposited by a new account holder (account open less than 30 days) (Correct answer)
- A US Treasury check
- A direct deposit via ACH
Correct answer: A check deposited by a new account holder (account open less than 30 days)
Regulation CC allows banks to place extended holds on deposits to new accounts (open fewer than 30 days) because the customer's deposit history has not been established.
CBT Negotiable Instruments and Check Processing 2
When a check is returned due to insufficient funds (NSF), who is typically charged the NSF fee?