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Payment Systems

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  1. Payment Systems Funds Availability

  2. Basic concepts We have learned: A bank only has to pay a check if it is authorized by the customer and there is sufficient funds in the account to pay the check.

  3. Basic concepts We have learned : A bank only has to pay a check if it is authorized by the customer and there is sufficient funds in the account to pay the check. Bank may agree to extend credit (overdraft) Bank may pay the check if there are insufficient funds but is not obligated

  4. Basic concepts • When are funds deposited available in an account for purposes of calculating sufficient funds to pay an item? • When does a bank check for funds?

  5. Basic concepts • When are funds deposited available in an account for purposes of calculating sufficient funds to pay an item? • Cash – when deposited • State law says: Items – when the bank is sure it has received final payment for the item. §4-215.

  6. Basic concepts • When are funds deposited available in an account for purposes of calculating sufficient funds to pay an item? • Cash – when deposited • State law says: Items – when the bank is sure it has received final payment for the item. §4-215. • Federal law pre-empts state law with hard deadlines. EFAA.

  7. Basic concepts • When does a bank check for funds?

  8. Basic concepts • When does a bank check for funds? • Whenever it decides to! §4-402(c)

  9. Basic concepts - EFAA • Establishes fixed deadlines for making deposited items available.

  10. Basic concepts - EFAA • Establishes fixed deadlines for making deposited items available. • Creates several exceptions for risky situations: new accounts, large items, suspicion of fraud.

  11. Basic concepts - EFAA • Local Check: Check drawn on a bank located in the same check processing region as the depository bank • Non-Local Check: A check drawn on a bank located outside the check processing region of the depository bank. • Cash withdrawal: Give me da money in small bills! • Non-cash withdrawal: Writing a check.

  12. Basic concepts - EFAA • Federal Reserve has merged all check processing regions into one making all checks local checks.

  13. Basic concepts - EFAA Low Risk Items • Cash • “On Us” Items • U.S. Treasury Checks • U.S. Postal Service Money Orders • Federal Reserve (or Federal Home Loan) Bank Checks • In State Government Checks • Cashier’s checks (check where the drawee and drawer are the same bank)

  14. Basic concepts - EFAA Other Factors that Can Effect Availability • Payee is not the Depositor • Deposit of Item not made “to an employee of the bank” e.g. to an ATM.

  15. Basic concepts - EFAA • Business Day: All days except Saturday, Sunday and Federal Holidays • Banking Day: A Business Day that a bank is open for general banking business. • UCC just uses the term Banking Day.