Banking Law Exam Questions

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Question 1 (a):

In offering protection in the cheque transactions to all the parties whereby Maria Smith will have the transaction go through and the other party, Fluffy Duck Pty Ltd, does not deny the completion of the transaction, several aspects of Cheques Act 1986 (Cth) come into play. Firstly, there should be an unconditional order to debit the specific amount of money to the specified account of the bearer to avoid the situation in which the institution can pay any other. This should be followed by a transaction statement giving the order. Secondly, the order ought to be specifically addressed to only one financial institution where the payee is sent as well. The cheque should also bear the date on which it was drawn so that it can indicate the duration taken in case the payment is not made in time.

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For an easier transaction that will eliminate the possibilities of confusion, the cheque should bear the name of the payee and should be in existence. In this case, the payment would be addressed to Fluffy Duck Pty Ltd, and the relevant personnel in the finance office will be considered the payee. The delivery of the cheque should be done by the drawer which, in this situation, is the Fluffy Duck Pty Ltd. To enhance the validity of the cheque, it should be contracted to a financial institution with the capacity to incur its liability. The signature is necessary for the responsibility of the cheque and the person involved. Even if he/she signs with the name of the business or a partnership firm, he/she is said to have signed on behalf of the other parties. The cheque is to be duly submitted for payment within a reasonable period, otherwise, the financial institution will be insolvent. Maria Smith should ensure that her account has sufficient funds to meet the payment made to avoid the financial institution dishonouring the cheque.

Question 1 (b):

Technology has drastically shifted the mode of a transaction from the use of cash and cheques to the use of electronic payments. It is evident that there has been an inverse relationship between the use of cheques and electronic payments over the years, and this difference can be associated with convenience and the high level of security that electronic payments offer. The use of cheques has been reducing over time while electronic payments have been on the rise. Unlike the cheque that requires the proofreading of the written details, electronic banking only involves keying in of the required account number, and then other details are configured automatically. This helps to avoid any details that may lead to error.

Unlike with the cheque that can be cashed to another person if the payee is not indicated, electronic banking also provides a high level of security whereby the account is protected by sophisticated encryption so that it can be easier to find out a security breach. Another security that comes with electronic banking is the use of a microchip that has all the details of the drawer. Unlike the cheque which an individual can write even he/she does not have an adequate amount of money in his/her account, electronic banking will reject the transaction immediately. When the cheque is not submitted within the required time frame, it becomes null and void; however, in the case of electronic trading, the purchase is immediate. It means that with electronic banking, there is no need to wait for any other procedure since the cash is transferred to the desired account instantly. Also, there is no need to involve the third party who can change the details of the cheque without the knowledge of the drawer, in this case, it is the owner of the account authorizing the transaction.

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Question 2(a):

In the business of lending, the lender is always advised to be cautious and ask for security so that if the loanee fails to repay, they can have something as collateral. However, in this case, Herman forgot that, and, therefore, the Blue Bank Ltd have the upper hand. The Blue Bank Ltd has secured lenders in this situation because they took the ownership of the house as security while Herman is the unsecured lender since he forgot to give the caveat. Although the Blue Bank Ltd has the upper hand, in case Herman seeks legal redress of the issue, the court may demand that he is compensated from the other finances derived from the mortgage. Since the Blue Bank Ltd is the secured party and they have the indefeasibility to the property, they can go ahead and seek perfection by registering with the Personal Property Securities (PSS). In this case, the achievement gives the holder of the mortgage priority over other parties that may have an interest in the same asset. In the event of insolvency or bankruptcy, the interests of perfection.

They can also go ahead and take control of the title to ensure that the property is not sold to an unsuspecting party. With the Blue Bank Ltd taking a step further in controlling the title, they will deny Herman any opportunity of influencing George, changing it with the terms and conditions that Herman was to give in the first place. Therefore, this will mean that if George is unable to pay and the title value of the mortgage fails to meet the Blue Bank Ltd. loan plus interest accrued, then Herman will suffer damage while the Blue Bank Ltd will get full compensation.

Question 2 (b):

The Personal Property Securities Register Act 2009 has been upgraded to have an online feature whereby the consumers purchasing a property such as cars and artwork can check their status so that an individual van does not buy collateral. This is important since if one buys property with security to it, there is a high probability that the holder of the security will repossess it. There have been new procedures set in the protection of the security interests as well as the introduction of new terminologies such as perfection and insolvency.

The concept used in this system is a single online register that has replaced the commonwealth and territory as well as over 70 states securities that have been considered outdated and inconsistent. The system includes all the personal properties except land. Those affected by the changes include manufacturers and whole sellers who practise the return of title terms. Among the new procedures, is collateral as a way of security interest. This has helped in settling a dispute where the collateral is a contest of two equally strong parties. In this case, the secured lender will have to register the guarantee with the Personal Property Securities after which he/she will obtain priority. If another contest occurs between two parties that have perfected the security interest, the one that was presented earlier takes prominence over the later perfection. The registration of perfection only is not enough, and for one to be confident that the collateral cannot be transferred to another party, he/she will have to upgrade to the next step of protection. Therefore, to be in a safe situation, the lender will further need to secure the control of the property so that he/she can be able to sell it in the case of insolvency or bankruptcy.

Question 3:

The lending of money in the modern era has faced numerous challenges, and this has led to the amendment of regulations to enhance scrutiny before the consumer is approved for a loan. According to the National Consumer Credit Protection (NCCP) reforms division 3, the lending institution is required to carry out the obligatory assessment of the suitability in offering a product to the consumer. In this case, as a manager at Mega Bank Pty Ltd, Marvin has done his job. Mary’s records testify to the fact that she has other debts that she is servicing despite having monthly child support. In this situation, the best decision for Marvin will be to cancel the agreement since it would not have complied with the NCCP Act due to the huge financial burden that Mary had and given the fact that she does not have a permanent job while her business has not been established yet. Firstly, under the Regulatory Guide 209.27, the assessment should determine the debt of the consumer and the length of the employment they have as well as decide whether they will be in a position to repay in the agreed time frame. In Mary’s case, she is not creditworthy since she has a high fixed expense in terms of child support whereby she pays $400 and the rent for the place of living in addition to the debt of $1,100.21 that she still has to clear. The job situation does not guarantee enough money to repay the loan since she earns $5,000 for a contract that is to run for seven months, meaning that at most she will have a total of $ 35,000 which is far too little to service the loan given that her business is not yet sustainable.

Under the Regulatory Guide 209.63, there is a substantial hardship that makes the agreement noncompliant. In this case, the child support will mean that the repayment will not be a priority, and it might not be repaid altogether. Also, the issue of the other debt that she has to pay lowers her credibility of being creditworthy. There are no tangible assets put in place that can be used as security; hence, they will be sold to settle the debt. In this case, the absence of any valuable asset makes the situation even more critical. After analysing Mary’s financial position, it becomes evident that the Mega Bank Pty Ltd will suffer damage if the loan is approved. This can be disastrous since the law will not favour the institution since it would have violated the regulations in the first place.

In addition, the Regulatory Guide 209.28 does not permit Mary to get a loan of $300,000 for the purpose for which the credit is sought as it does not justify the mode of payment. The credit is to secure a premise so that Mary can continue to do her business. Since it is not clear how much the company makes, this makes the way of paying the loan unconvincing. It would be logical for her to secure the loan for business expansion due to the high number of clients, meaning that the income is high; however, in this situation, she may have the premise but fail to attract customers to generate revenue. It, therefore, accords with the regulatory guide if Marvin would be advised to reconsider the contract agreement and decline to give her the loan.

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Question 4:

In the modern world, financial transactions have become complicated, in particular, due to online sales where hidden charges can be experienced. Therefore, a greater need is felt to ensure the investors’ protection, increase their confidence, and enhance the efficiency of the market. The information disclosure should clearly explain to the client both the offering and the risk associated with the issuer, including the update of the already given information so that the decisions arrived at can be sound.

It would be crucial to enable the public to know the transactions involved and the different charges arising from those transactions. The issuance of the product disclosure statement will help the investor to understand the nature of the transaction he/she is involved in and the kind of risk linked to it. When the charges are applied, it is important that this information is availed to ensure that the individuals are comfortable with what they have been charged; in case they are not comfortable, they can opt to seek the services of another provider. This is the only way one can be satisfied with the uncertainties that may arise out of the situation he/she evaluates as risky.

The disclosures also bring about open and fair dealings between the organization and the client. With the fee for a certain transaction already identifies, the individual will be in a position to account for it even without seeking clarification. It also means that clients will be confident of the amount they have regarding the calculation they have carried out since it will be a reflection of the institution’s activity. It will help considerably in curbing the clients’ theft that is practised by unfaithful employees who do not honour their work ethics. If such a situation occurs and the clients discover that their amount is less than what they are supposed to have, they can file a complaint and restore justice.

The level of tolerance is another important factor determined by the financial market. If a product disclosure statement is communicated in due time, an individual will be in a position to know whether he/she risks a certain amount of money given that the risk is higher than the reward. If the individual is well off financially, then it would not be an issue. In case the financial tolerance is low, the person can reduce the amount to be risked or avoid the involvement of the product altogether.

Another crucial factor is the categorization of products, especially if there are different products with varying rates, as this will help the clients find out which products would be suitable for them. Some products may have different prices or commissions; consequently, if an individual gets to know that another person is being charged a different rate, he/she will be able to learn the reason. The product disclosure statement will be able to open the manner in which individuals view the product they are trading. In addition, due to this knowledge, they will be able to keep track of their transactions and, therefore, help in the disclosure of any discrepancies.

The knowledge of the alternative methods of trade is equally important since it will help the investors to know the type of currency they are using and choose the method that fits their currency not to incur unnecessary charges that might be involved in the conversion of coins. Thanks to this information, the investors can understand the costs they consider hidden and, therefore, avoid them so as to safeguard their resources.

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