ABU DHABI // The Government and leading banks took the first concrete steps yesterday towards ending the threat of imprisonment for bouncing a cheque.
Decriminalising the issue is being studied as part of a broader federal strategy for consumer protection being introduced in stages over the next four years.
"There's an overall issue of consumer protection," said Saeed Abdullah Al Hamiz, assistant governor for banking supervision at the Central Bank. "This is part of … a new federal strategy for 2014-2016."
The Central Bank has also expanded the Debt Settlement Fund for Emiratis, increasing eligibility to those with debts of up to Dh5 million, as part of a plan to address indebtedness among both Emiratis and expatriates.
The Fund, which was set up as an initiative by the President, Sheikh Khalifa, formally signed agreements with four banks yesterday on a settlement mechanism for Emirati personal loan defaulters who have either been subject to court rulings or are still on trial.
The deal is "an important addition to the partnership between the Fund and the banking sector towards achieving the noble goals of the President's initiative", said Mohammed Abdullah Al Rumaithi, deputy chairman of the Fund's higher committee, who signed the agreements with Sharjah Islamic Bank, Noor Islamic Bank, HSBC and the Arab Bank for Investment and Foreign Trade.
The new moves reflect growing consensus among bankers and senior legal officials that the laws on bounced cheques are in need of overhaul. The National reported last month that 1.5 million cheques worth Dh55.3 billion were rejected in 2011.
The rate of failure is about 10 times that of the UK, which processes three times as many cheques.
A presidential decree to mark Eid Al Adha ordered that Emiratis be immune from prosecution for bounced security cheques written to banks and finance companies, and all those serving prison sentences should be released. Hundreds have been freed from jail since then, about 290 in Abu Dhabi alone.
Cheques written by Emiratis – excluding those to banks and finance companies – have also been cleared, representing Dh122 million in payments, said Ali Al Dhaheri, manager of legal affairs at the Ministry of Presidential Affairs, which has spearheaded efforts to improve financial awareness.
Out of a backlog of 522 cases involving such transactions, 236 have been settled and 127 Emiratis freed.
The existing laws still apply to expatriates, who may still face jail if a cheque bounces, but banks including Emirates NBD say the presidential decree was a crucial step towards decriminalising the issue for all. The Government “will study this issue” and see what instructions come from the country’s rulers, said Mr Al Dhaheri.
A possible solution is for a guarantee on new lending, better informed by a customer’s ability to pay and potential end-of-service-benefits if borrowers lose their job.
“We are on the way to studying this issue with the Central Bank and concerned sectors to set up new rules regarding guarantees,” Mr Al Dhaheri said.
Once their debts had been settled, banks would then have to address how to persuade Emiratis not to borrow in the expectation that they would be bailed out later.
Banks including Noor Islamic Bank and Emirates NBD have supported a move away from the existing law on cheques, which must be used to guarantee certain transactions such as mortgages.
Lt Gen Dahi Khalfan, the Dubai Police Chief, says pursuing people whose cheques bounce is a waste of police time.