Business Laws: Negotiable Instruments Banking Laws

8/17/2019 Business Laws: Negotiable Instruments Banking Laws

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© South-Western Publishing Slide 11

NEGOTIABLEINSTRUMENTS

5.15.1 Types of Negotiable Instruments

5.25.2 Presenting Checks for Payment

5.35.3 Processing Checks

5.45.4 Changing Forms of Payments

5.55.5 Security Issues

55


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Lesson 5.1

TYPES OF

NEGOTIABLEINSTRUMENTS

Define the term negotiable instrument

Identify different types of negotiable

instruments

GOALSGOALS


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NEGOTIABLE INSTRUMENTSNEGOTIABLE INSTRUMENTS

NEGOTIABLE INSTRUMENTSNEGOTIABLE INSTRUMENTS

What is negotiable

Negotiable means transferable!

The negotiation that goes on refers to the transfer of the

instrument bet"een t"o people# or from one bank to another#or e$en from one country to another!

What is an instrument

In the broadest sense# almost any agreed-upon medium of

e%change could be considered a negotiable instrument!In day-to-day banking# a negotiable instrument usually refers

to checks# drafts# bills of e%change# and some types of

promissory notes!


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FORMS OF NEGOTIABLE INSTRUMENTSFORMS OF NEGOTIABLE INSTRUMENTS

FORMS OF NEGOTIABLE INSTRUMENTSFORMS OF NEGOTIABLE INSTRUMENTS

& negotiable instrument is a "ritten order

promising to pay a sum of money!

It may be a bearer instrument# "hich is payableto the bearer # or it may be an instrument "ith

highly specified terms!


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CHECKSCHECKS

CHECKSCHECKS

'ost common form of negotiable instrument

Preferred method of payment for many debts

(ffer con$enience# safety# and a record oftransactions


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STANDARD FEATURES OF PERSONAL CHECKSSTANDARD FEATURES OF PERSONAL CHECKS

STANDARD FEATURES OF PERSONAL CHECKSSTANDARD FEATURES OF PERSONAL CHECKS

For simulation use only

Maria Mills

12 River Street

Pettisville, OH 43553-0177

Pettisville BankPettis$ille# (hio

801

)*-+),+

103 7943000801 041200257

.Pay to theorder of

/ollars

/ate

For

Account Nume!Account Nume!

"#eck Nume!"#eck Nume!

DateDate

AmountAmount

AmountAmount

$i%natu!e$i%natu!e&emo&emo

Identification Nume!sIdentification Nume!s

PayeePayee


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DRAFTSDRAFTSDRAFTSDRAFTS

& draft is a three-party instrument similar to a check!

& draft is an order signed by one party 0the drawer # or

drafter 1 that is addressed to another party 0the drawee1

directing the dra"ee to pay to someone 0the payee1 theamount indicated on the draft!

The payment may be at sight or at some defined time!

'ost drafts are used for the purchase of goods andser$ices "hen the transaction goes beyond the bounds

of 2!S! banking la"!



BILLS OF EXCHANGEBILLS OF EXCHANGEBILLS OF EXCHANGEBILLS OF EXCHANGE

& bill of e%change is a negotiable and

unconditional "ritten order# such as a check# draft#

or trade agreement# addressed by one party to

another!

The recei$er of the bill must pay the specified

sum or deli$er specified goods on demand or at a

specified time!3ills of e%change are a common form of

internationally negotiable instruments!



PROMISSORY NOTESPROMISSORY NOTESPROMISSORY NOTESPROMISSORY NOTES

& promissory note is a "ritten promise to pay at a

fi%ed or determinable future time a sum of money to

a specified indi$idual!

These t"o-party instruments are legally binding

documents "ith many specified terms that $ary

"idely!

Commercial paper # a short-term 0+45 days or fe"er1note or daft issued by a corporation or go$ernment#

is a common in$estment instrument!



Lesson 5.2

PRESENTING CHECKSFOR PAYMENT

Identify bank re6uirements for honoringchecks

'ist common forms of check endorsements

GOALSGOALS



ELEMENTS OF NEGOTIABILITYELEMENTS OF NEGOTIABILITYELEMENTS OF NEGOTIABILITYELEMENTS OF NEGOTIABILITY

Written

Signature

2nconditional promise or order

Sum certain

Payable on demand or at a defined time

Words of negotiation



TYPES OF ENDORSEMENTTYPES OF ENDORSEMENTTYPES OF ENDORSEMENTTYPES OF ENDORSEMENT

3lank endorsement

7estricti$e endorsement

Full endorsement8ualified endorsement



IDENTIFICATION AND CHECK ACCEPTANCEIDENTIFICATION AND CHECK ACCEPTANCEIDENTIFICATION AND CHECK ACCEPTANCEIDENTIFICATION AND CHECK ACCEPTANCE

3anks may re6uire as much or as little

identification to cash or deposit a check at

they "ish!

3anks may ha$e different rules for customers

and noncustomers!



Lesson 5.3

PROCESSINGCHECKS

Identify three key la"s that make today9scheck-clearing process possible

()*lain the se6uence of e$ents as a check

is processed for payment

GOALSGOALS



THE CHECK PAYMENT SYSTEMTHE CHECK PAYMENT SYSTEMTHE CHECK PAYMENT SYSTEMTHE CHECK PAYMENT SYSTEM

Federal 7eser$e &ct of :;

2niform Commercial Code of :)<

=%pedited Funds &$ailability &ct of :



CHECK PAYMENT AND PROCESSINGCHECK PAYMENT AND PROCESSINGCHECK PAYMENT AND PROCESSINGCHECK PAYMENT AND PROCESSING

/ra"er Payee

& National 3ank 3 National 3ank

Federal 7eser$e

0or other intermediary1


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Lesson 5.

CHANGING FORMSOF PAYMENTS

'ist modern forms of payment systems

()*lain ho" banks and other financial

institutions use automated forms of

payment

GOALSGOALS



CONSUMER PAYMENTSCONSUMER PAYMENTSCONSUMER PAYMENTSCONSUMER PAYMENTS

Charge cards

Credit cards

Cash cards/ebit cards

Smart cards


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CHARGE CARDSCHARGE CARDSCHARGE CARDSCHARGE CARDS

With a charge card# a consumer makes purchases but

must pay the account in full at the end of the month!

Charge cards# in effect# lend the amount of purchases

for a month!(riginally charge cards "ere store cards# but e$entually

third-party companies formed net"orks of participating

businesses to e%pand the market!

&merican =%press is the most prominent national

charge card!


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CREDIT CARDSCREDIT CARDSCREDIT CARDSCREDIT CARDS

Credit cards allo" consumers to pay all or part

of their bills each month and finance the unpaid

balance!

2sing a credit card in$ol$es t"o banks>the

bank that issued the card and the retailer9s bank!


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STEPS IN CREDIT CARD PURCHASESTEPS IN CREDIT CARD PURCHASESTEPS IN CREDIT CARD PURCHASESTEPS IN CREDIT CARD PURCHASE

& consumer uses a credit card!

The retailer sends the credit slip to its o"n bank!

The retailer9s bank pays the retailer# records the

transaction# and sends credit slip to a clearing

system!

The clearing system routes the credit slip to the

issuing bank!The issuing bank pays the retailer9s bank and

collects from the consumer!


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CASH CARDSCASH CARDSCASH CARDSCASH CARDS

Cash cards are commonly used at an

automated teller machine 0&T'1!

Consumers can get cash# make transfers and

deposits# or perform other banking functions by

inserting the card and entering a personal

identification number 0PIN1!


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DEBIT CARDSDEBIT CARDSDEBIT CARDSDEBIT CARDS

/ebit cards transfer money from a person9s

designated account to the account of the retailer!

& debit card allo"s an immediate point-of-sale

0P(S1 transaction!


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SMART CARDSSMART CARDSSMART CARDSSMART CARDS

Smart cards are credit# debit# or other types of

cards "ith embedded microchips!

The microchips store $alues and use the

embedded logic to change $alues and record

transactions!


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FUTURE PAYMENT SYSTEMSFUTURE PAYMENT SYSTEMSFUTURE PAYMENT SYSTEMSFUTURE PAYMENT SYSTEMS

=-checks

=lectronic tokens


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BANK PAYMENTSBANK PAYMENTSBANK PAYMENTSBANK PAYMENTS

=lectronic funds transfer 0=FT1

/irect deposit

&utomatic payments

&utomated clearing houses 0&C?s1

(nline transfers

Fed"ireClearing ?ouse Interbank Payment System 0C?IPS1


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THE LEADING EDGETHE LEADING EDGETHE LEADING EDGETHE LEADING EDGE

/igital imaging

=lectronic check presentment 0=CP1


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Lesson 5.5

SECURITY ISSUES

Identify security issues that banks face

'ist "ays that banks and other financial

institutions can combat fraud

GOALSGOALS


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SECURITY ISSUES IN BANKINGSECURITY ISSUES IN BANKINGSECURITY ISSUES IN BANKINGSECURITY ISSUES IN BANKING

Physical security

Technology security

Fraud


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PHYSICAL SECURITYPHYSICAL SECURITYPHYSICAL SECURITYPHYSICAL SECURITY

3uilding design

Sur$eillance and alarm technology

=mployee trainingTransportation security


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TECHNOLOGY SECURITYTECHNOLOGY SECURITYTECHNOLOGY SECURITYTECHNOLOGY SECURITY

Security technology

Physical security

&dministrati$e policies


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FRAUDFRAUDFRAUDFRAUD

Check fraud

Credit card fraud

@oan fraud


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FRAUD PRE!ENTIONFRAUD PRE!ENTIONFRAUD PRE!ENTIONFRAUD PRE!ENTION

3ank administration

=mployee training

Consumer education


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© S th W t P bli hiSlid 34

CONSUMER TIPSCONSUMER TIPSCONSUMER TIPSCONSUMER TIPS

2se checks "ith built-in security features!

/o not ha$e your social security number printed on

checks!

/o not endorse a check until Aust before you cash ordeposit it!

/o not lea$e spaces on checks!

7econcile your account regularly!Shred documents!

3e careful on the telephone# in person# and on the Web!

Documents

Business Laws: Negotiable Instruments Banking Laws