Dubai: With the recent changes in bounced cheque regulations and its impact on cheque issuers and beneficiaries in the UAE, there is currently a need to relearn what happens when a cheque bounces and how it affects the financial health or finances of an individual.
The punishment for a cheque bounce in the UAE is now a civil suit (and not a criminal offence), which is instituted against the drawer for payment of the cheque amount.
Cheque bounce, in fact, is one of the most common financial offences in most countries worldwide that can lead to disastrous consequences for the issuer. Here is a look at the various ways in which a bounced cheque can affect you:
Penalty imposed by the bank
If your cheque happens to bounce due to insufficient funds or any other technical reason like signature mismatch, both the defaulter and the payee are charged by their respective banks.
If the bounced cheque is against the repayment of any loan, you would have to additionally bear the late payment charges (which vary from Dh200 to Dh700, for smaller cheque amounts) along with the penalty fee charged by the bank. For much larger cheque amounts, fines range from Dh1,000 to Dh10,000.
The penalty charges for cheque outward return are close to Dh300 for most banks, while charges for cheque inward return are about Dh100. The exact penalty charges vary with banks and are different for different account types. Premium accounts usually have higher penalty charges.
What is ‘inward cheque return’ and ‘outward cheque return’? ‘Outward cheque return’ means that a person deposited a cheque received from a third person which bounced, while ‘inward cheque return’ means a person's issued cheque returned from bank due to insufficient funds in his/her account.
If your bank reports you, the negative mark will remain on your record there for years. This mark could prevent you from opening a new bank account during that period.
As with a credit report, you can dispute any information you think is incorrect, and you may be allowed to submit a statement for your file presenting your side of the dispute.
Negative impact on your credit score
A bounced cheque can dent your financial credit history. Even though a single bounce may not irreparably harm your score (to an extent that you can be denied a loan in the future), it does hurt your prospects, Dubai-based banking analysts warn.
A bounced check will not directly affect your credit score as banks do not report bounced checks to the major credit bureaus. So if one returns marked ‘insufficient funds’, it won’t show up on your credit report and won’t severely cripple your credit score immediately.
But a bounced check can damage your financial standing – and eventually your credit score – in several other ways, the analysts reiterated.
How to not let a bounced cheque hurt your credit score? So to keep your score healthy ensure your cheques are never dishonoured and that there would be at least a few hundreds of dirhams more than the minimum balance for your account even after the cheque is encashed.
Filling of civil charges by the aggrieved party
Many do end up paying only a small fine paid to the bank for a bounced cheque. On the other hand, the aggrieved party that does not receive the promised funds can file a civil case against you as an issuer of the cheque in the UAE. In several other countries, it can lead to a criminal case and not a civil one.
By waiving the criminal liability of a bounced cheque for no sufficient funds, this will play a big role in boosting the busıness confidence between individuals and corporates. It will also promote for further investments and corporates trust to deal with cheques in UAE.
It will also reduce the number of travel bans imposed by the police against individuals in the UAE: and have a substantial effect on the financial instıtutions who greatly depend on cheques as a mean of guarantee against their debt facilities and personal or car loans.
Nevertheless, the new amendments preserve the cheque beneficiary's rights by considering the cheque as an executive deed, which fast track the collection process through the civil court.
However, it as well protects the drawer's legal position from the criminal court's wide discretionary power that used to consider any bounced cheque a crime regardless of the reason behind issuing the cheque.
What does the new bounced cheque rules in the UAE mean to you?
One of the key changes is decriminalisation of cheques issued without sufficient funds. However, criminalisation of bounced cheques due to insufficient funds in cases of fraud, forgery and bad faith will stay. Also, partial payment of cheques will become mandatory.
This apart, the bank must pay the drawee the partial amount if the amount in the account is less than the value mentioned in the cheque unless the drawee rejects it.
The bank can pay the amount available in the cheque issuer’s account, regardless of what sum is found in the account. For example, if the cheque value was Dh100,000 and the account had Dh50,000, the bank would have to pay the existing amount of Dh50,000.
Will cheques bounce only because of insufficient funds?
Although, there are several reasons for a cheque to bounce such as incorrect date mentioned on the cheque, signature mismatch, mismatch of the amount and figures, damaged cheque, overwriting of the cheque, etc. The principal reason for a cheque bounce is insufficient funds.
First, if your account lacks appropriate funds from which the cheque has been issued, there are high chances that the cheque will bounce. In the second case of cheque bounce, you receive a cheque from an account which has minimal to no funds. When this happens, the bank will not process the cheque.
Both these are scenarios of a bounced cheque. Nominal penalty to both parties will apply in either of the above situations, like mentioned earlier. Thus, one must maintain sufficient funds in the account to prevent a cheque bounce.
A bounced cheque fee varies from bank to bank, and various other penalties are charged over and above the fines.
How to avoid such fines? To avoid these fines, you can set a future date on the cheque and ensure that there are adequate funds in the account to prevent a cheque bounce.
However, another option would be to carry out your transaction via online payments. Online funds transfers save a lot in terms of penalties and fines, and they’re also convenient. You can set up an automatic payment facility and no follows would be required.
However, the cheque bounce occurred only due to insufficient funds in drawer’s account. Although cheque bounce cases are common these days, cheque remains unpaid.
Key takeaway: How can you be better prepared in the case of a bounced cheque?
Ideally, the best way to deal with the situation is to pay the cheque amount as soon as possible, before the matter is taken to court.
However, it may be possible that you don’t have the funds or financial ability to pay the amount. In such matters, it is best to prepare proof of your innocence and evidence for your inability to pay. The court will give you a chance to prove you did not deliver a bad cheque with ill intentions.
Seeking legal help at this stage is advised to ensure that you know all the options available to you. Even when you’re cancelling accounts before leaving the UAE, it is important that you clear off all your debts, including un-cashed cheques to avoid being blacklisted.