Table Of ContentY
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Team-Fly®
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ANAGING THE
R
ISKS OF
P
AYMENT
S
YSTEMS
Paul S. Turner
Diane B. Wunnicke
John Wiley & Sons, Inc.
M
ANAGING THE
R
ISKS OF
P
AYMENT
S
YSTEMS
John Wiley & Sons
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M
ANAGING THE
R
ISKS OF
P
AYMENT
S
YSTEMS
Paul S. Turner
Diane B. Wunnicke
John Wiley & Sons, Inc.
This book is printed on acid-free paper.
Copyright © 2003 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey
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Library of Congress Cataloging-in-Publication Data:
Turner, Paul S.
Managing the risks of payment systems / Paul S. Turner, Diane
B. Wunnicke.
p. cm.
Includes bibliographical references.
ISBN 0-471-32848-0 (Cloth)
1. Electronic funds transfer. 2. Payment. 3. Risk management. 4.
Corporations—Finance. I. Wunnicke, Diane B. II. Title.
HG1710.T87 2003
658.15'5--dc21 2002156141
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
Contents
Preface xiii
Chapter 1 “We Didn’t Know” Is No Excuse 1
What Is a Payment System? 1
Payment Systems 2
Liability for Fraud Losses: The Law
and the Contract with the Bank 3
Bank Shifting Its Statutory Liability to the
Customer: Examples 4
New Frontier in Cyberspace 5
Chapter 2 Payment Systems Survey 7
Barter 7
Coins 8
Paper Money 8
Drafts Become Paper Money 8
Notes Become Paper Money 10
v
Contents
Evolution of Fiat Money
in the United States 11
New York Clearing House Association 11
Check Systems 14
Electronic Payments 15
Fedwire 15
Net Settlement Services 17
CHIPS 17
CHIPS Funds Transfer: Example 18
ACH 19
SWIFT 20
Why SWIFT Is “Swift” 20
How the SWIFT System Works 20
Chapter 3 Checks and the Risk of Fraud 23
Negotiable Instruments 23
Drafts 24
Check Law 29
Some Definitions 29
Paid and Accepted (Certified) Checks 30
Bearer Paper 31
Negotiation and Endorsement 32
“Holder in Due Course” Doctrine 32
Due Course 34
Notice of Fraud or Defenses to Payment 35
Risks to Others Because of the Rights
of a Holder in Due Course 36
Shelter Principle 37
Check System in the United States 38
Bank Deposits and Collections:
The Depository Bank—Provisional
versus Final Payment of a Check 38
Payor Bank: “Final Settlement”
of Presentments 39
Fraud and Forgery 41
Basic Rule with Respect to Fraud 41
vi
Contents
Exceptions to the Basic Rule 42
Comparative Fault 44
Payor Bank’s Recourse against
Collecting Banks 45
Variation by Agreement: Warning to
Treasury Managers and Their Lawyers 46
Fraudulent Endorsements 47
Managing Risks of the Check
Payment System: Company That
Issues Checks 50
Internal Controls 50
Bank Controls 51
Check Stock 52
Positive Pay Arrangements 53
Company That Receives Checks 55
Receipt 55
Chapter 4 Wire Transfers: Originator to Its Bank to
Receiving Bank 59
Links in the Funds-Transfer Chain 59
Originator and Its Bank 61
Nonacceptance of Payment Orders 62
Bank’s Right to Reject Orders:
Eliminate Interest Obligation 63
Cancellation and Amendment of Payment
Orders 64
Acceptance and Execution of the Originator’s
Payment Order 68
“Money-Back Guarantee” 77
Statute of Repose 79
Liability for Fraudulent Funds Transfers 81
Notes for Negotiators of Funds-Transfer
Agreements 82
Liability for Misdescription of the Beneficiary 83
Interest 83
vii
