The UAE Central Bank has recently issued new regulations governing cheque book issuance. The new directive comes in light of bad cheque interception by the UAE Clearing Cheque System. Out of the 7 million cheques handled in the first three months of 2018, at least 310,000 were found bogus. Even though this is a decline by 11.1 percent from the same period in 2017, the number is too significant to be ignored.

The objective

The new regulations aim at promoting responsible lending practices by banks by bringing transparency to lending and borrowing.

The move also aims to minimize the use of cheque books and encourage the use of other smart modes of payment that are better regulated by the banks.

What exactly do the new regulations entail?

Ensuring the creditworthiness of financial active individuals is essential for any economy. This move comes in an effort to further strengthen the UAE’s financial standing.

In accordance with the regulations, all UAE banks will now be required to carry out a full background check of an individual’s credit history with Al Etihad Credit Bureau (AECB) and gauge their creditworthiness before issuing a cheque book. Additionally, new customers will be provided cheque books containing no more than 10 leaves. New cheque books can be issued after 6 months so long as no cheques have bounced during this period.

The banks have been further advised to inform their customers that bounced cheques as a result of insufficient funds in their account will be reported to AECB and will negatively reflect in their credit score.

A UAE Federal Government organization, Al Etihad Credit Bureau was set up to provide creditors information in order to make better lending decisions. They provide credit reports based on an individual’s history of financial obligations with banks as well as credit card, telecom and utility companies within the UAE. Recently, the bureau rolled out an app that UAE residents can use to download their credit reports and credit scores.

[Related: Now access your credit report anytime, anywhere]

Dealing with scams

The UAE Central Bank also aims to tackle forgery with elevated security standards in the new cheques. The new cheque books issued are required to be thermo-chromic and chemical sensitive. This would help combat fraud by making it impossible to take colored photocopies of the cheque leaf or tamper with signature or modify any other written information.

The banks have been instructed to stop accepting old cheques and ask their customers to replace old cheque books with the new ones.

Bouncing of cheques due to inadequate funds is a criminal offence in the UAE. According to the new ruling it is punishable with a fine of AED 2,000 for dishonored cheques of up to AED 50,000 and between AED 5,000 and AED 10,000 for cheques of higher value.