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Tuesday, April 25, 2006

Bouncing Czechs

Not the famed acrobatic Serbo-Croats of yore, not even the eponymous band of the eighties, no, I'm talking about a uniquely Khaleeji concept: the idea that a cheque drawn on a bank is somehow like cash. And that if the cheque is dishonoured, the issuer has committed a criminal offence. Note that well. It's not a simple civil offence, it's criminal. Yes folks it's true, you can go to jail for having a cheque bounce on you.

I have no sympathy for the scoundrels who issue post-dated cheques for large amounts of money, nor for the victims who accept these things and release goods or services against them. Both parties deserve everything they get.

But for us mere mortals, things are a bit different. Let's say you want to buy a car, and you want to pay over 36 months. You have to write 36 post-dated cheques! Or you are renting a house or apartment. You will have to write three or four post-dated cheques for the year's rent. How on earth are you supposed to be able to guarantee that you can honour these cheques? Unless you have a ton of money stashed away under your bed in Switzerland, you cannot. You have no way of knowing if you will still have a job / source of income next week, never mind three years from now. But the law here, stupidly, takes the view that you, by signing a post-dated cheque, have promised that you will have funds in place at the time that the cheque is presented!

So if you have been given a PDC and it bounces, you can take the cheque to the Police, and they will happily arrest and incarcerate the issuer. I wonder how that is supposed to solve anything?

Some of the smarter companies here will delay presenting a PDC for a few weeks if you ask them to, but you have to pay them a fee (I know, I've done it twice with my landlord - 500 dirhams a go it is).

I bring this up because of an article in Gulf News a few days ago. A lawyer is whingeing that banks are being lax in reporting bounced cheques to the UAE Central Bank. The banks are supposed to report all bounced cheques because the UAECB has a rule that says anyone who has four bounced cheques in a year can no longer have a cheque book.

Post-dated cheques are a seriously bad idea. Basing large chunks of your economy on them is silly. Making it a criminal offence for anyone to issue a bouncy cheque is just plain moronic. I hate having to write PDCs, it makes me feel dirty. Basically when I issue a PDC I'm telling a lie, because there is no way that I can know that I will have funds in place to cover it on the due date. Insh'allah I will, but you never know. I could be sick and unable to work, I could have clients (especially Government) who do not pay on time, I could actually have no work at all.

But for many transactions in the UAE - buying a car on credit, renting accommodation - the only way you can do it is by issuing PDCs. Ridiculous.

16 Comments:

Blogger Duffy said...

Is this a quirk of Islamic law vis a vis banking or just an oddity of the UAE? What's to keep someone from skipping town with PDC's outstanding?

11:37 pm  
Blogger MamaDuck said...

Good question Duffy. Not a lot, it seems, as long as you think big.

7 DAYS April 20th: Dubai police is on the lookout for an Indian national who allegedly cheated several traders in the emirates for nearly dhs20 million..... 40 victims and vanished without trace.

I've seen this once before, too.

7:02 am  
Blogger Shafique said...

It is a wierd system and one I hadn't heard of. Nothing to do with Islamic law as far as I know which makes it a criminal offence to bounce a cheque.

When I bought my new car a month ago, I hadn't got my chequebook yet (money in account - yes, credit card - yes, chequebook - not until you sign away the ... sigh)

I bank with HSBC so got the credit through them (to make life easier, even though they weren't the cheapest). The bizare thing was that they guy managed to get a blank cheque drawn up in my name and got me to sign it... they would fill in the outstanding amount if I defaulted, apparently.

Now, what makes this really bizarre is that the loan is being repaid by standing order from my HSBC account - the same account the cheque will be drawn against..

Not a nice feeling to know that I could potentially be a criminal if someone fills in that cheque and presents it and I can't pay!?

8:53 am  
Blogger Keefieboy said...

Shafique: yes I'd forgotten about the blank cheque as a guarantee for loans or credit cards! Apparently it can be quite hard to get these back from some banks when you have paid off the loan. Scary.

8:59 am  
Blogger Tim Newman said...

I have to say, I have not come across anyone asking me to sign a blank cheque, and I recently took out a car loan from HSBC. If they were to ask me, I would stick two fingers up their nostrils and go and buy a Nissan Sunny for cash. No way would I write a blank cheque for anyone.

By the way, do you know if it is possible to cancel a cheque here? Rather than trying to reclaim PDCs, it would be better just to cancel them. If I had to present a cheque, I'd use my Isle of Man chequebook and cancel the thing the next day by phone, swallowing the £20 fee.

9:17 am  
Blogger Harsha said...

Oh, got my own stories on PDC's

1)Worked for a company that had NO MONEY ATALL to even pay us salaries for 2 months, but kept buying material on PDCs knowing they are gonna bounce. I had a drawer full just for bounced cheques. None of us ever wanted to answer the phone.

2)I'm in the middle of this whirlwind agreement from the past 1.5 months where we are the agents, the supplier doesnt want to sign the agreement without PDCs from the client, the Client refuses to give PDCs saying he could be in trouble, hes paid 50% he'd definately pay the rest on the due dates. He will. We know. But the agreement is lying with me cuz of this whole PDC shit.. arrrrrghhh!

3) Our college takes PDCs from us for 9 months. one cheque for each month. Ok easy, we dont have to go paying every month, no excuses for forgettng. But some students dont have accounts or dont have cheque books. So someone from their family STILL has to issue PDCs for them and every month they have to go pay cash in return of the PDC for that month. And no they wont accept a lumpsum payment.

Anyways, on the better side, PDCs enable companies discount the cheques, this helps when you need capital at the very moment but if the cheque bounces, the entire money is obviously deducted from your account plus the fee that already had been deducted at the time of discounting.

We may have not had all this traffic if it werent for PDCs

9:38 am  
Blogger Tainted Female said...

Now, there’s some food for thought. I hate writing post dated cheques as well. Actually, I have written the blank ones for credit-cards before though…

As for canceling a cheque, I looked into it once. It’s not possible. Unless you make a police report first; something about having the cheque stolen before-hand was mentioned as a must before the police report would be issued.

Did you know that if you cheque bounces (mo matter what the amount) the punishment is jail, and very rarely states you must repay the amount of the cheque? A lot of cases where card were bought with did cheques, then resold were highlighted a while back. The guy only got a few months in jail. Some would say, almost worth the thousands he made in the meantime.

10:24 am  
Blogger Harsha said...

The co. I mentioned i worked for, that always had bounced cheques, used wasta to stop some of the cheques.

and this agreement i was talking about, the supplier okay-ed the client to write 'this cheque is not to be depositted wituout consent' on the top of the cheque. makes sense? the client is protected because if u write any statement on a cheque, its void, cannot be used. and the supplier is somehow happy with it? wha??

11:29 am  
Blogger Grumpy Goat said...

If you were to sign a document undertaking to pay a me sum of money on a particular day, and I accepted the said document, we would have all three components of a 'Contract':

An offer,
Unconditionally accepted,
Consideration.

If that contract then got broken, I'd be very annoyed, and I'd want the promised money toute suite.

Contract law is civil, not criminal, so the way it's done in the UAE seems very strange to Westerners, and I'd not expect anyone to do porridge for failure to deliver Dh 100, or Dh 5 for that matter.

And yet, despite the consequences, people do deliberately bounce cheques here. I recall trying and failing to get Dh65,000 out of a company. But given that company's sponsor, the police wouldn't lift a finger, and cheques were repeatedly replaced with more worthless rubberware.

As for a requirement to provide PDCs, how is this different from setting up a standing order? You know that the car payment is going out on the 19th of each month, so you make darn sure that funds are available to cover it, don't you?

[flame suit on!]

6:53 pm  
Blogger Keefieboy said...

Grumpy: how it's different is that missed standing orders do not constitute an offence. Sure your bank will hit you with a small fine, but that's the end of the matter. However you will not find landlords or car loan companies allowing you to pay by standing order. Strange no?

7:51 am  
Blogger bandicoot said...

Could it be a carryover from this country’s trade legacy? Traders (and pirates and smugglers) who came to these parts for decades and until recently did business without cheque books; they traded goods and paid in cash. Perhaps that’s why the government here usually doesn’t accept cheques. How many times you wrote a cheque for the immigration authority (to get a visa issued) or for the police (to pay fines or get your car registered)? Probably never! They only honor cash (or e-cash or something just as good)! On the other hand, the fear of what modern day crooks can do is real, especially in this transient community where expatriates just come and go and businesses (and authorities) can do little to track down “runners” and embezzlers who vanish with their loots after leaving behind a pile of dud cheques! It happens all the time. I personally wouldn’t mind making a bouncing cheque a criminal offense if all other promised payments and services are treated similarly, so that the chiefs of companies that fail to pay their employees get arrested and real estate developers and landlords who do not deliver what people paid them for are thrown in jail until they do so.

11:33 am  
Blogger Keefieboy said...

Bandicoot: ah yes, lock the buggers up, that really solves everything doesn't it.

11:57 am  
Blogger samuraisam said...

or become a pirate...

arrrr...

the plus side of being a pirate is that you never have to pay for any software, movies, music, or tv-shows again!

1:40 pm  
Anonymous Teller said...

In Kuwait if a person gets a certain number of bounced cheques their bank account gets closed and they get placed on a blacklist for 3 years that keeps them from opening accounts at other banks. The bad side to this issue is even if the cheques are post-dated the receiver of the cheques is under no obligation to cash them at the date on the cheque. They can cash them immediately and usually that's what causes the most problems in my line of work.

12:53 am  
Anonymous Anonymous said...

A friend of mine is being hunted by CID for a bounced cheque to his landlord, but he has let the country for a short holiday ,i am left managing his buisiness while he is away.Does anyone know what the exact penalty he will face when he returns to the country will be so i can begin to make plans to advise him and secure the future of his buisiness.I would realy appreciate any info offered.

12:46 pm  
Blogger sassy said...

i also have a friend who is being hunted by bank agents (im not sure if CID) for a bounced cheque to his credit cards, but he has let the country for a short holiday ,now since he left his mobile with me and i am accepting messages and calls from the bank agents that he is being sued already. According to one sms i received through his mobile is that he already have a police case under his name in uae. He is now in one of GCC country, can you please advise if he can stil be caught if he goes out of that country or is it true what i heard that he can be put in jail directly from the immigration check in the airports?

pls advise so i could let him knw what to do...

6:37 pm  

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