Midterm 2 Chapter Summary.docx

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Marketing and Consumer Studies
MCS 3040
Joseph Radocchia

Business and Consumer Law Midterm 2 Chapter Summary Chapters 25 26 27 20 21 22 13 14 15 16 17 18Chapter 25Business And BankingThe Banking Relationship REGULATION OF BANKSBanks are under federal jurisdiction and are regulated through the federal Bank ActBank Actthe 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 BankCustomer Relationship BANKING AGREEMENTA contract that specifies the rights and obligations of a bank and a customerPurpose of the banking agreementTo specify who has the authority to issue instructions to the bank on behalf of the customerTo allocate the risk of loss resulting from problems with verifying the customers authority and carrying out the customers instructions Duties of the Bank and Customer COMMON LAW IMPOSES ADDITIONAL DUTIES ON BOTH PARTIES TO THE BANKING CONTRACTThe bank mustHonour cheques and repay depositsCollect cheques for the customerProvide account information to the customer on a regular basisMaintain secrecy of the customers affairs MONEY LAUNDERINGThe false reporting of income from criminal activity as income from legitimate businessBanks urged toVerify the identity of individual and corporate customers Verify the validity of customers business activitiesDetermine the source of transfers exceeding 10000Legislation 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 crossborder currency transfers THE CUSTOMER HAS IMPLIED DUTIES TO THE BANKTake reasonable steps to provide documentation as to who is authorized to give instructions to the bank in order to prevent fraud and forgeryKeep authorizations currentNotify the bank of any suspected problems Provide safeguards for electronic communications including telephone fax and computer The BankCustomer RelationshipIn terms of the customers money on deposit with the bank the relationship is purely that of the bank as debtor and the customer as creditorIf financial advice is provided then a fiduciary relationship existsNegotiable 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 bearerChequewritten order to a bank or by electric funds transfer to pay money to a specified personPromissory notea written promise another person to pay a specified amount Bill of exchangewritten order to a person to pay an amount to another person Steps in the Cheque Circulation Processcreator and drawer issues cheque to supplier payee supplier deposits cheque in its bank suppliers bank places cheque in suppliers accountthrough the chequeclearing process thecheque moves from the suppliers bank to creators bank drawee creators bank removes funds from creators account andtransfers to suppliers bank suppliers bank recovers its funds Implications of Creating a Cheque ISSUING A CHEQUEAn unconditional promise to pay the specified sum to the holder who presents the cheque to the bank for paymentHoldera person who has possession of a negotiable instrumentHolder in due coursea 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 NOTEA negotiable instrument signed by a consumer to buy on credit NEGOTIATION The process of transferring negotiable instruments from one person to another ENDORSEMENTThe 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 paymentEndorsements 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 themSigning a cheque on the back is known as an endorsement in blank Holders should take care with the form of endorsementsRestrictive endorsement signing a cheque for deposit only to a particular bank accountSpecial endorsement signing a cheque and making it payable to a specific personElectronic BankingFinancial transactions through the use of computers telephones or other electronic means Electronic storage means the data are subject to system crashes or hackersFraud has become a significant concern RISKSIdentity theft has become a serious organized criminal activityFederal government introduced Bill S4 to create new criminal law offences for obtaining or possessing identity information with the intent to commit certain crimes includingTrafficking in identity information with knowledge of or recklessness as to it intended usePossessing instruments for extracting and copying debit and credit card information LESSENING RISKBanking contracts contain provisions for the riskof electronic transactions that specify the customers duties to report problems to the bank and the banks duties for electronic failuresCanadian Code of Practice for Consumer Debit Card has been created to provide guidanceInternational rules designed to deal with the obligations of the partiesTechnology and the Law ELECTRONIC CASHPAYMENT SYSTEMSAutomated payments from chequing accounts direct deposit of cheques ATMs payment by telephone or computer and point of sale transfers with debit cardsContactless credit card payment using microchips and radio frequenciesCell phonesare gaining wide use as a variation in online bankingMethods of PaymentMethods of Payment
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