CBT Negotiable Instruments and Check Processing

Question 1

Which federal law governs the check clearing process and establishes the rules for substitute checks in the US?

Accepted Answer

Check Clearing for the 21st Century Act (Check 21)

Answer

Check 21, enacted in 2003, allows banks to process checks electronically and legally use substitute checks (IRDs) instead of original paper checks.

Question 2

A check that has been signed on the back by the payee to transfer it to another party is called a:

Accepted Answer

Endorsed check

Answer

Endorsing a check means the payee signs the back to authorize payment or transfer, with blank, restrictive, or special endorsement types available.

Question 3

What is a 'restrictive endorsement' on a check?

Accepted Answer

Writing 'For Deposit Only' with your account number

Answer

A restrictive endorsement limits how the check can be used, typically by writing 'For Deposit Only' followed by an account number to prevent cashing.

Question 4

Under the Expedited Funds Availability Act (Regulation CC), how quickly must banks make funds from local checks available?

Accepted Answer

Next business day

Answer

Regulation CC generally requires that funds from local checks be made available by the next business day after the banking day of deposit.

Question 5

A check drawn on the bank's own funds and signed by a bank officer is called a:

Accepted Answer

Cashier's check

Answer

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.

CBT - Certified Bank Teller Practice Test