The days of quaking with fear because you have accidentally bounced a check could be over soon, if local media hype is anything to go by.
Reports suggest the Central Bank is considering decriminalising bounced checks for all residents – four months after a presidential decree lifted the penalty for Emirati borrowers.
While changing the law would be good news for UAE residents, it is not quite as straightforward as it seems. This is because the order, already in place for Emiratis, only relates to security checks drawn against personal finance products such as personal loans, car loans or credit cards. So what will it mean if this order gets widened to include expatriates?
It means if you miss a couple of loan repayments and your bank cashes a check issued as loan collateral and that check bounces, you won’t go to jail. But if they cash in a standard payment cheque and there is not enough cash in your account for the check to be processed, then you may be in trouble.
It may be an oversight on your part and good banks will give you a grace period to get the funds in place – but don’t take anything for granted. At the end of the day, under current law, expatriates are still committing a crime if they bounce a check.
But there is a bigger issue here. The Central Bank is not only considering widening this order out to all residents, but also decriminalising bounced checks altogether – bringing the banking system in line with international standards.
While such a dramatic change in the law would be welcomed by all, the banks are allowed to be concerned.
Having no security check in place to cover defaulted loan payments could leave banks exposed and with no federal credit bureau to vet potential borrowers, it could reduce lending.
UAE nationals stopped facing jail for bounced checks following a presidential decree in October and, according to The National, since then 1,000 check defaulters have been released from jail. With banks also saying there has been a rise in the number of Emiratis missing payments on unsecured lending, it is easy to see how problems might arise.
Now the banks are pushing for a federal credit bureau to replace the security check so that borrowers can be thoroughly checked. It will certainly be interesting to see what happens next.