Question

Chuck deposits his paycheck drawn on Big Bank at Small Bank, and his account is credited with this deposit. Three days later, Chuck is notified by Small Bank that his paycheck has been dishonored by Big Bank due to insufficient funds, and the amount of the check has been deducted from Chuck's Small Bank account. Which of the following is true of this situation?

a. The settlement by Small Bank was provisional and was rightfully rescinded since the paycheck was dishonored.
b. Small Bank acted too slowly and did not comply with the prescribed schedule of Regulation CC.
c. Big Bank is the payor bank and hence, must reimburse Small Bank, the depositor bank.
d. Small Bank cannot credit Chuck's account until it is certain that Big Bank will honor the check.

Answer 1

The true statement in this situation is that Big Bank, as the payor bank, must reimburse Small Bank, the depositor bank.

Step-by-step explanation:

In this situation, option c is true: Big Bank is the payor bank and hence, must reimburse Small Bank, the depositor bank. When Chuck deposited his paycheck drawn on Big Bank at Small Bank, Small Bank credited Chuck's account with the deposit. However, three days later, Small Bank received notification that the paycheck was dishonored due to insufficient funds from Big Bank. As a result, the amount of the check was deducted from Chuck's Small Bank account.