Subpart C

Question 1

What does Subpart C of the collection process cover?

Answer 1

Requirements for each bank in the collection process and specific warranties

Includes guidelines for handling checks and electronic checks

Question 2

Are electronic checks treated the same as paper checks under Subpart C?

Answer 2

Yes, unless paper check or paper returned check is specified

Electronic checks are subject to the same collection process as paper checks

Question 3

What is required if a bank must provide information in writing?

Answer 3

It may provide the information electronically if the receiving bank agrees

This allows for flexibility in communication methods

Question 4

What must a paying bank do when it decides not to pay a check?

Answer 4

Return the check in an expeditious manner

Must ensure the depositary bank receives it by 2:00 p.m. on the second business day

Question 5

What must a paying bank indicate on the front of a returned check?

Answer 5

That it is a return and the reason for return

This is crucial for clear communication and record-keeping

Question 6

What must a paying bank include when returning a substitute check or electronic returned check?

Answer 6

Information that would be retained on any subsequent substitute check

Ensures traceability and proper documentation

Question 7

What can a paying bank do if the check is unavailable for return?

Answer 7

Provide a notice in lieu of return

This serves as an alternative notification method

Question 8

What is the definition of ‘expeditious return requirements’?

Answer 8

Return of checks must be done such that the depositary bank receives them promptly

Specifically, by 2:00 p.m. on the second business day

Question 9

What happens if a paying bank cannot identify the depositary bank?

Answer 9

It may send the returned check to any bank that handled the check for forward collection

The paying bank must advise that it cannot identify the depositary bank

Question 10

What is required to be sent when a check is returned?

Answer 10

Sufficient copy of the front and back of returned check

This ensures that the necessary documentation is provided for record-keeping and processing.

Question 11

What must a written notice of nonpayment contain?

Answer 11

Information from the check’s MICR line, name of payee(s), amount, date of depositary bank indorsement, bank name, routing number, trace or sequence number, reason for nonpayment

This information helps identify the check and the basis for the nonpayment.

Question 12

What is a ‘sorry’ document in this context?

Answer 12

May refer to a notice of nonpayment

This term indicates a document that communicates the nonpayment status of a check.

Question 13

What is the deadline for a paying bank to provide notice of nonpayment for checks $5,000 or more?

Answer 13

By 2:00 p.m. (local time) on the second business day following the banking day on which check was presented

This requirement ensures timely communication regarding nonpayment.

Question 14

True or False: The paying bank warrants that if notice in lieu of return is sent, the check has not been returned.

Answer 14

True

This warranty is important as it protects the interests of the parties involved.

Question 15

What does reliance on routing number allow the paying bank to do?

Answer 15

Return a check based on any routing number designating depositary bank appearing on returned check

This allows for flexibility in processing returned checks.

Question 16

What must the depositary bank prove if a claim for late return is asserted?

Answer 16

That arrangements for receiving returns are commercially reasonable

This places the burden of proof on the depositary bank in disputes over late returns.

Question 17

Fill in the blank: Acceptance of electronic returned checks and electronic notices of nonpayment is done by agreement with the _______.

Answer 17

[transferor bank]

This agreement is necessary for the legitimacy of electronic transactions.

Question 18

What is required for the returning bank regarding checks?

Answer 18

Same requirements for expeditious return as the paying bank

This ensures consistency in the handling of returned checks.

Question 19

What is the responsibility of the depositary bank in relation to unidentifiable checks?

Answer 19

Same requirements/process for unidentifiable depositary bank

This ensures that all checks are handled appropriately, even if they cannot be easily identified.

Question 20

What must be included in the notice of nonpayment from the paying bank?

Answer 20

Information from the check’s MICR line when received, name of payee(s), amount, date of depositary bank indorsement, bank name, routing number, trace or sequence number, reason for nonpayment

This information is critical for accurate processing and accountability.

Question 21

What must a bank do upon receiving a returned check?

Answer 21

Send the returned check or notice directly to the depositary bank or to a returning bank agreeing to handle the returned check

This ensures proper processing of the returned item.

Question 22

When must payment be made to the returning or paying bank for a check?

Answer 22

Prior to the close of business on the banking day on which the check was received

This is crucial for timely processing.

Question 23

What is required for payment to be considered final?

Answer 23

Payments are final when made

This indicates that once a payment is processed, it cannot be reversed.

Question 24

What must a depositary bank not impose when accepting returned checks?

Answer 24

A charge for accepting and paying checks being returned to it

This protects customers from additional fees.

Question 25

By when must a depositary bank notify its customer of a returned check?

Answer 25

By midnight of the banking day following the banking day on which it received the returned check or notice ## Footnote This ensures timely communication with the customer.

Question 26

What warranties do banks provide when transferring or presenting an electronic check?

Answer 26

* Electronic image accurately represents all information on front and back of original check at time of truncation * Electronic information includes an accurate record of all MICR line information required for substitute check and amount of the check * No person will be charged for an electronic check or electronic returned check that has already been paid ## Footnote These warranties ensure the integrity and accuracy of electronic transactions.

Question 27

True or False: A bank may charge a customer for a duplicate electronic check.

Answer 27

False ## Footnote This is known as the no double-debit or no duplicates warranty.

Question 28

What must a bank do if it receives an oral notice of nonpayment?

Answer 28

Accept the oral notice of nonpayment during its banking day ## Footnote This facilitates communication regarding payment issues.

Question 29

What is the method of debiting the settlement account of the depositary bank?

Answer 29

By cash, wire transfer, or any other form of payment acceptable to returning or paying bank ## Footnote This allows flexibility in payment methods.

Question 30

Who do the warranties extend to when transferring for collection?

Answer 30

* Transferee bank * Any subsequent collecting bank * The paying bank * The drawer ## Footnote This ensures all parties involved are protected.

Question 31

Who do the warranties extend to when transferring for return?

Answer 31

* Transferee returning bank * Any subsequent returning bank * The depositary bank * The primer ## Footnote This ensures all parties involved in the return process are covered.

Question 32

What does a bank warrant when it transfers or presents a remotely created check?

Answer 32

The bank warrants that the person whose account the check is drawn on authorized the issuance of the check, the amount stated on the check, and the payee stated on the check.

Question 33

Under what condition can a warranting bank defend against a claim for breach of warranty?

Answer 33

The warranting bank may defend by proving that the paying bank's customer is precluded from asserting the claim under UCC 4-406.

Question 34

What does the warranty of settlement amount include?

Answer 34

Each bank that presents checks warrants that the total amount of checks presented is equal to the total amount of settlement demanded by the presenting bank.

Question 35

What information must accompany checks during transfer or presentation?

Answer 35

Accompanying information must accurately indicate the total amount of checks or returned checks transferred.

Question 36

What does the encoding warranty ensure?

Answer 36

The encoding warranty ensures that information encoded after issue regarding the check or returned check is accurate.

Question 37

What is included in the MICR line of a paper check?

Answer 37

The MICR line includes any information placed in the line that could be encoded, such as the check number and account number.

Question 38

What can a settling bank do if the settlement amount exceeds the total amount of checks?

Answer 38

The settling bank may offset the excess settlement amount against future or subsequent settlements.

Question 39

What warranties are associated with returned checks?

Answer 39

* The paying bank or returning bank warrants that: * It returned the check within its UCC midnight deadline * It is authorized to return the check * The check has not been materially altered * For notice in lieu of return, the check has not and will not be returned.

Question 40

What does the warranty regarding notice of nonpayment include?

Answer 40

* The paying bank warrants that: * The check is returned or will be returned within the UCC midnight deadline * It is authorized to send the notice * The check has not been materially altered.

Question 41

Fill in the blank: Each bank that presents or transfers a check or returned check warrants that the information encoded after issue is _______.

Answer 41

[accurate]

Question 42

What is the purpose of indemnity in banking?

Answer 42

Indemnity provides security or protection against losses.

Question 43

What is Remote Deposit Capture (RDC)?

Answer 43

RDC involves accepting a deposit of an electronic image or other electronic information related to the original check.

Question 44

True or False: An indemnity claim can be made if the original check had a restrictive indorsement inconsistent with the means of deposit.

Answer 44

False

Question 45

What does a truncating bank do?

Answer 45

It accepts a deposit of an electronic image or other electronic information related to the original check.

Question 46

Fill in the blank: Indemnity is provided to the depositary bank that accepted the original check and incurred a loss if the loss is due to the check having already been ______.

Answer 46

paid

Question 47

What happens if a paper deposit bank accepted a check with a restrictive indorsement inconsistent with the means of deposit?

Answer 47

It may not make an indemnity claim.

Question 48

What is the relationship between indemnity and electronically-created items (ECI)?

Answer 48

Indemnity is provided for each bank that transfers or presents an ECI and receives a settlement or consideration for it.

Question 49

Who is indemnified against losses due to an ECI?

Answer 49

Transferee bank(s), any subsequent collecting bank, the paying bank, and any subsequent returning bank.

Question 50

What are the potential causes for losses related to an ECI?

Answer 50

Electronic image is not derived from a paper check; unauthorized issuance of the item; charged for an ECI already paid.

Question 51

What is the maximum amount for damages for breach of warranties?

Answer 51

Shall not exceed amount of item plus interest compensation and expenses.

Question 52

Fill in the blank: The amount of damages for RDC Indemnity or ECI Indemnity claims shall not exceed the sum of the indemnified bank's loss, up to amount of ______ received by the indemnifying bank.

Answer 52

settlement or other consideration

Question 53

What additional rights may a bank have under indemnity claims?

Answer 53

Other rights under UCC or applicable state or federal law.

Question 54

What must a notice of claim be made within?

Answer 54

30 days after claimant has reason to know of breach and identity of warranting bank ## Footnote Failure to provide timely notice can discharge the warranting bank to the extent of any loss caused by the delay.

Question 55

What is the liability of a bank handling a check for forward collection?

Answer 55

Liable to any bank that subsequently handles the check to the extent that the subsequent bank does not receive payment for the check ## Footnote This applies whether or not a bank has placed its indorsement on the check.

Question 56

What must a bank do with a check during forward collection or return?

Answer 56

Indorse the check in a manner that permits interpretation and in accordance with ANSI standards ## Footnote Standards include ANSI X9.100-111, ANSI X9.100-140, and ANSI X9.100-187.

Question 57

What is the American National Standards Institute (ANSI) standard for check endorsement?

Answer 57

ANSI X9.100-111 Check Endorsement Standard ## Footnote This standard is used for both paper checks and electronic overlay images.

Question 58

What happens after a check is indorsed by a bank?

Answer 58

Only the bank may acquire the rights of a holder until the check has been returned or specifically indorsed to a non-bank entity ## Footnote This means the bank retains rights until certain conditions are met.

Question 59

What must a bank avoid when applying another bank's indorsement as depositary bank indorsement?

Answer 59

Must avoid area reserved for depositary bank indorsement as specified in the indorsement standard applicable to the check ## Footnote This is crucial for compliance with indorsement standards.

Question 60

When is a paper check considered received by the paying bank?

Answer 60

When it is received at the location to which delivery is requested or the address of the bank associated with the routing number on the check ## Footnote This defines the point of receipt for processing purposes.

Question 61

Fill in the blank: A warranting bank is discharged to the extent of any loss caused by the delay in giving _______.

Answer 61

notice of the claim ## Footnote Timely notification is critical for the bank's liability.

Question 62

True or False: A bank that accepts an item for collection can collect from a non-bank entity.

Answer 62

False ## Footnote The bank is the holder of the item and may not collect directly from a non-bank entity.

Question 63

What is the role of a depositary bank in relation to another bank's indorsement?

Answer 63

Considered the depositary bank for purposes of Subpart C ## Footnote This applies in centralized return environments.

Question 64

What standard governs the terms under which a paying bank will accept presentment of an electronic check?

Answer 64

Governed by agreement ## Footnote This is critical in electronic check processing.

Question 65

What is the liability of a bank during forward collection?

Answer 65

Settlement between banks for forward collection of a check is final when made ## Footnote Collecting bank may be liable to a prior collecting bank, including the depositary bank and the depositary bank's customer.

Question 66

What must a paying bank do when a paper check is presented for same-day settlement?

Answer 66

Must settle for or return the check if presented by 8 a.m. on a business day at a designated location ## Footnote Paper checks must be separated from other forward-collection checks or returned checks.

Question 67

What happens if the presentment of a paper check meets the established requirements?

Answer 67

Paying bank is accountable to presenting bank for the amount of the check unless it settles or returns the check by close of Fedwire on the business day ## Footnote Settlement can be by credit to an account at a FRB designated by the presenting bank.

Question 68

What can vary the effect of provisions of Subpart C?

Answer 68

Provisions may be varied by agreement, except for disclaiming responsibility for lack of good faith or failure to exercise ordinary care ## Footnote Agreements cannot absolve a bank of its own negligence.

Question 69

What standard of care must a bank exercise under Subpart C?

Answer 69

Must exercise ordinary care and act in good faith ## Footnote Failure may result in liability to the depositary bank, depositary bank's customer, owner of a check, or another party.

Question 70

What is the measure of damages for failure to exercise ordinary care?

Answer 70

Amount of the loss incurred, up to the amount of the check, reduced by loss that would have occurred even if bank had exercised ordinary care ## Footnote This emphasizes the importance of due diligence in check processing.

Question 71

What is the measure of damages for failure to act in good faith?

Answer 71

May be liable for consequential damages ## Footnote This reflects the serious implications of acting in bad faith.

Question 72

What is the consequence of a paying bank's failure to make timely return?

Answer 72

Liable under either the expeditious return requirements or the deadline for return under UCC, but not both ## Footnote This creates a clear framework for liability in case of delays.

Question 73

What is comparative negligence in the context of banking liability?

Answer 73

Not defined in the provided text ## Footnote Typically refers to the allocation of fault among parties involved in a dispute.

Question 74

Fill in the blank: A collecting bank handling a check for forward collection may be liable to a _______.

Answer 74

[prior collecting bank] ## Footnote This includes the depositary bank and the depositary bank's customer.

Question 75

What happens if a person fails to exercise ordinary care in indorsing a check?

Answer 75

Damages incurred may be diminished in proportion to the amount of negligence or bad faith attributable to that person.

Question 76

What is the presumption of alteration in disputes between banks?

Answer 76

The presumption applies to whether a substitute check or electronic check contains an alteration or is derived from an original check with an unauthorized drawer signature.

Question 77

How can the presumption of alteration be overcome?

Answer 77

By proving by a preponderance of evidence to the contrary.

Question 78

What happens if the original check is made available for examination by all banks involved in the dispute?

Answer 78

The presumption of alteration would no longer apply.

Question 79

Do the provisions regarding presumption of alteration alter UCC transfer and presentment warranties?

Answer 79

No, they do not alter UCC transfer and presentment warranties that allocate liability for altered items or items issued with an unauthorized signature.

Question 80

What do the provisions of Subpart C supersede?

Answer 80

They supersede UCC as adopted in any state or any other state law, but only to the extent of the inconsistency.

Question 81

Which exclusions apply to Subpart C regarding expeditious return and notice of nonpayment?

Answer 81

They do not apply to checks drawn upon the United States Treasury, checks drawn on a state or local government that is not payable, or U.S. Postal Service money orders.

Question 82

Fill in the blank: The presumption of alteration applies in the absence of other _______.

Answer 82

[Federal statute or regulation]

Question 83

True or False: The provisions of Subpart C apply universally to all checks without exclusions.

Answer 83

False

Question 84

What sections of the UCC are referenced for details on alteration and unauthorized signatures?

Answer 84

UCC §3-407, UCC §1-201, and UCC §3-403.