business laws: negotiable instruments banking laws
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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
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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$ices "hen the transaction goes beyond the bounds
of 2!S! banking la"!
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BILLS OF EXCHANGEBILLS OF EXCHANGEBILLS OF EXCHANGEBILLS OF EXCHANGE
& bill of e%change is a negotiable and
unconditional "ritten order# such as a check# draft#
or trade agreement# addressed by one party to
another!
The recei$er of the bill must pay the specified
sum or deli$er specified goods on demand or at a
specified time!3ills of e%change are a common form of
internationally negotiable instruments!
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PROMISSORY NOTESPROMISSORY NOTESPROMISSORY NOTESPROMISSORY NOTES
& promissory note is a "ritten promise to pay at a
fi%ed or determinable future time a sum of money to
a specified indi$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$estment instrument!
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Lesson 5.2
PRESENTING CHECKSFOR PAYMENT
Identify bank re6uirements for honoringchecks
'ist common forms of check endorsements
GOALSGOALS
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ELEMENTS OF NEGOTIABILITYELEMENTS OF NEGOTIABILITYELEMENTS OF NEGOTIABILITYELEMENTS OF NEGOTIABILITY
Written
Signature
2nconditional promise or order
Sum certain
Payable on demand or at a defined time
Words of negotiation
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TYPES OF ENDORSEMENTTYPES OF ENDORSEMENTTYPES OF ENDORSEMENTTYPES OF ENDORSEMENT
3lank endorsement
7estricti$e endorsement
Full endorsement8ualified endorsement
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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$e different rules for customers
and noncustomers!
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Lesson 5.3
PROCESSINGCHECKS
Identify three key la"s that make today9scheck-clearing process possible
()*lain the se6uence of e$ents as a check
is processed for payment
GOALSGOALS
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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 :
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CHECK PAYMENT AND PROCESSINGCHECK PAYMENT AND PROCESSINGCHECK PAYMENT AND PROCESSINGCHECK PAYMENT AND PROCESSING
/ra"er Payee
& National 3ank 3 National 3ank
Federal 7eser$e
0or other intermediary1
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Lesson 5.
CHANGING FORMSOF PAYMENTS
'ist modern forms of payment systems
()*lain ho" banks and other financial
institutions use automated forms of
payment
GOALSGOALS
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CONSUMER PAYMENTSCONSUMER PAYMENTSCONSUMER PAYMENTSCONSUMER PAYMENTS
Charge cards
Credit cards
Cash cards/ebit cards
Smart cards
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CHARGE CARDSCHARGE CARDSCHARGE CARDSCHARGE CARDS
With a charge card# a consumer makes purchases but
must pay the account in full at the end of the month!
Charge cards# in effect# lend the amount of purchases
for a month!(riginally charge cards "ere store cards# but e$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$e policies
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FRAUDFRAUDFRAUDFRAUD
Check fraud
Credit card fraud
@oan fraud
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FRAUD PRE!ENTIONFRAUD PRE!ENTIONFRAUD PRE!ENTIONFRAUD PRE!ENTION
3ank administration
=mployee training
Consumer education
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CONSUMER TIPSCONSUMER TIPSCONSUMER TIPSCONSUMER TIPS
2se checks "ith built-in security features!
/o not ha$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!