Midterm 2 Chapter Summary.docx

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Business and Consumer Law
Midterm #2 Chapter Summary
Chapters 25, 26, 27, 20, 21, 22, 13, 14, 15, 16, 17, 18
Chapter 25 Business And Banking
The Banking Relationship
REGULATION OF BANKS
Banks are under federal jurisdiction and are regulated through the federal Bank Act
Bank Act the main purpose is to ensure the stability and liquidity of banks and to identify and
regulate the types of business they are permitted to conduct
The Bank-Customer Relationship
BANKING AGREEMENT
A contract that specifies the rights and obligations of a bank and a customer
Purpose of the banking agreement
To specify who has the authority to issue instructions to the bank on behalf of the
customer
To allocate the risk of loss resulting from problems with verifying the customer's
authority and carrying out the customer’s instructions
Duties of the Bank and Customer
COMMON LAW IMPOSES ADDITIONAL DUTIES ON BOTH PARTIES TO THE BANKING
CONTRACT
The bank must:
Honour cheques and repay deposits
Collect cheques for the customer
Provide account information to the customer on a regular basis
Maintain secrecy of the customer’s affairs
MONEY LAUNDERING
The false reporting of income from criminal activity as income from legitimate business
Banks urged to:
Verify the identity of individual and corporate customers
Verify the validity of customers’ business activities
Determine the source of transfers exceeding $10,000
Legislation passed in 2000 creates a mandatory reporting system in which banks, trust companies,
insurance companies, and professionals must report to a new independent body (Financial
Transactions and Reports Analysis Centre (FINTRAC)) any suspicious financial transactions and
large cross-border currency transfers
THE CUSTOMER HAS IMPLIED DUTIES TO THE BANK
Take reasonable steps to provide documentation as to who is authorized to give instructions to
the bank, in order to prevent fraud and forgery
Keep authorizations current
Notify the bank of any suspected problems
Provide safeguards for electronic communications (including telephone, fax, and computer)
The Bank-Customer Relationship
In terms of the customer’s money on deposit with the bank, the relationship is purely that
of the bank as debtor and the customer as creditor
If financial advice is provided then a fiduciary relationship exists
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Negotiable Instruments
NEGOTIABLE INSTRUMENT- a written contract containing an unconditional promise or order to pay a
specific sum on demand or on a specified date to a specific person or bearer
Cheque written order to a bank or by electric funds transfer to pay money to a specified
person
Promissory note a written promise another person to pay a specified amount
Bill of exchange written order to a person to pay an amount to another person
Steps in the Cheque Circulation Process
creator and drawer issues cheque to supplier (payee)
supplier deposits cheque in its bank
supplier’s bank places cheque in supplier’s account
through the cheque-clearing process, the
cheque moves from the supplier’s bank to creator’s
bank (drawee)
creator’s bank removes funds from creator’s account and
transfers to supplier’s bank
supplier’s bank recovers its funds
Implications of Creating a Cheque
ISSUING A CHEQUE
An unconditional promise to pay the specified sum to the holder who presents the cheque
to the bank for payment
Holder a person who has possession of a negotiable instrument
Holder in due course a holder in good faith without notice of defects who acquires
greater rights than the parties who dealt directly with each other as the drawer and drawee
CONSUMER NOTE
A negotiable instrument signed by a consumer to buy on credit
NEGOTIATION
The process of transferring negotiable instruments from one person to another
ENDORSEMENT
The process of signing a negotiable instrument to enable negotiation
DECIDING TO ACCEPT A CHEQUE
Deciding to accept a cheque is equivalent to extending credit since there are several days
between handing over goods and receiving payment from a cheque
CERTIFICATION
The process whereby a bank guarantees payment of a cheque
STOP PAYMENT
The process whereby the person who writes the cheque orders the bank not to pay the holder
who presents it for payment
Endorsements
Those in possession of cheques should take steps to safeguard them and transfer them by endorsing in a way
that minimizes the risk that others may illegally obtain and cash them.
Signing a cheque on the back is known as an endorsement in blank.
Holders should take care with the form of endorsements
Restrictive endorsement- signing a cheque for deposit only to a particular bank account
Special endorsement- signing a cheque and making it payable to a specific person
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Electronic Banking
Financial transactions through the use of computers, telephones, or other electronic means
Electronic storage means the data are subject to system crashes or hackers.
Fraud has become a significant concern
RISKS
Identity theft has become a serious organized criminal activity
Federal government introduced Bill S-4 to create new criminal law offences for obtaining or
possessing identity information with the intent to commit certain crimes including:
Trafficking in identity information with knowledge of or recklessness as to it intended use
Possessing instruments for extracting and copying debit and credit card information
LESSENING RISK
Banking contracts contain provisions for the risk of electronic transactions that specify the
customer’s duties to report problems to the bank and the bank’s duties for electronic failures
Canadian Code of Practice for Consumer Debit Card has been created to provide guidance
International rules designed to deal with the obligations of the parties
Technology and the Law
ELECTRONIC CASH & PAYMENT SYSTEMS
Automated payments from chequing accounts, direct deposit of cheques, ATMs, payment by
telephone or computer and point of sale transfers with debit cards
Contactless credit card payment using microchips and radio frequencies
Cell phones are gaining wide use as a variation in online banking
Methods of Payment
Methods of Payment
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