Can Banks Close Accounts for Bounced Checks?
Can Banks Close Accounts for Bounced Checks?
The issue of bounced checks in the UAE can have serious consequences not only from a financial but also a legal perspective. Many are unaware of how many bounced checks can lead to account closure and how this can affect their creditworthiness. Below, we provide a detailed overview of the rules applicable to this situation.
Consequences of Bounced Checks
According to the Central Bank of the UAE (CBUAE) regulations, every bank is required to inform their clients in writing about the consequences of bounced checks during the account opening process. This includes:
1. Imposing fees: A separate fee may be charged for each bounced check.
2. Possibility of account closure: In the event of repeated bounced checks, the bank may close the affected current account.
3. Negative credit report: Reporting to the Al Etihad Credit Bureau (AECB) negatively impacts the client’s credit score.
When Can the Bank Close the Account?
Under UAE commercial transaction laws, banks are allowed to close a client’s account under certain conditions. According to CBUAE regulations:
a. Four bounced checks within a year: If four checks bounce due to insufficient funds within a calendar year, the account may be closed for two years.
b. Repeated offense: If the client repeats this mistake, the account closure period may be extended to up to three years.
c. Withdrawal of unused checks: Banks may reclaim all unused checks.
What Happens if the Account is Closed?
If the bank closes the client’s account due to bounced checks, this information is automatically reported to the AECB. This leads to the following consequences:
a. Negative credit rating: Bounced checks worsen the client’s credit rating, making future financial dealings, such as taking loans or opening new accounts, more difficult.
b. Opening new accounts at other banks: Although technically possible, financial institutions check the client’s creditworthiness through the AECB database. If the score is unfavorable, the new bank may reject the application or restrict available services.
What Can the Client Do in Such a Situation?
If issues have arisen due to previously bounced checks, it is advisable to consider the following steps:
1. Contact the bank: Request clear information on the rules and consequences affecting your account.
2. Check creditworthiness: Access your credit report through the AECB system to see how previous bounced checks have affected you.
3. Improve financial habits: Regularly ensure sufficient funds and handle checks carefully to reduce risks.
Closing Thoughts
In the UAE, banking regulations strictly handle the issue of bounced checks. While one or two incidents may not result in immediate account closure, frequent problems can have serious consequences. It's important for every client to be aware of their bank’s terms and manage their finances prudently to avoid unpleasant situations.
