Banks Must Close Customer Accounts If Three Cheques Bounce In A Year

Kuwait's Central Bank Board of Directors has approved a set of new measures to combat the rising number of bounced checks and closed accounts caused by insufficient funds. A number of significant actions are included in these measures, including:

If a customer experiences three instances of returned checks within a year due to insufficient funds, all of their current accounts will be promptly closed. Additionally, their name will be flagged in the system, reports Al-Rai Daily.

As well, customers who have had their accounts closed at another bank due to bounced checks will not be able to open new accounts or receive checkbooks.

In order to reinforce these measures and ensure their effectiveness, the Central Bank has updated its guidelines regarding the central inventory system for individuals whose accounts have been closed at local banks due to insufficient funds and bounced checks. These revised rules and procedures are aimed at fostering trust in cheque usage as a means of fulfilling financial obligations and mitigating the negative repercussions of cheque misuse in financial transactions.

Kuwait Credit Information Network Company, 'Ci-Net,' has developed specialized software to assist these efforts. Banks are now required to provide Ci-Net with data regarding customers with returned checks and closed accounts in accordance with these new instructions.

Kuwait's banks processed 1.6 percent more checks last year, totaling 26.929 billion dinars in valid checks utilized in commercial transactions, compared to 26.504 billion dinars the previous year.

59.8 million dinars worth of checks were returned in 2022 due to insufficient funds, totaling 3,962. Additionally, 558 accounts were closed due to bounced checks, with the total value of checks issued on these closed accounts estimated at approximately 30 million dinars, according to reports from the Central Bank.

These new measures will come into effect starting Jan 2, 2024, with an ongoing requirement to provide the Central Bank with the relevant data through the Closed Accounts System (CAS) until further notice from the bank. Below is a summary of the updated controls governing the handling of returned checks and closed accounts due to insufficient balance.

First: The system of closed accounts for checks returned due to insufficient balance:
— “Ci-Net” creates a system for returning checks and closed accounts due to insufficient balance, and a database for this system, and the company is responsible for supervising, developing and maintaining the system.
— Local banks are obligated to participate in the system and report data related to checks returned due to insufficient balance, and accounts closed due to returned checks due to insufficient balance, on a daily basis in accordance with the requirements of “Ci-Net”.
— For the purposes of preparing statistical and supervisory reports, banks must report the total number/value of checks submitted, and the total number/value of checks returned due to insufficient balance on a monthly basis.
— Communication takes place between local banks and “Ci-Net” directly in the event of inquiries about the system or in the event of facing any technical problems.

Second: Rules and procedures to be applied by banks:
— The bank must report the data of any Cheque returned to the customer due to insufficient balance at the time in the Ci-Net automated system, even if his account has not been closed.
— The bank will inquire about the customer in the system of returned checks and closed accounts due to insufficient balance in the following cases:
a. Request to open a current account for the customer.
b. Request to issue/or re-issue a check book.
c. The customer’s check is returned due to insufficient funds.

If the bank discovers upon inquiry that there is an account closed for the customer by other banks, then a current account will neither be opened for the customer nor a check book issued.

All checking/current accounts of the customer with the bank must be closed and his name included in the system if checks bounce within a year due to insufficient balance, with a maximum of 3 checks bearing different numbers, or the bank deems the customer to have bad faith, which will result in non-payment of the check value.

In such a case the customer’s name continues to be included in the system for a period of one year, after which his name will be removed from the system automatically. Banks must also ask customers whose accounts have been closed to hand over to the bank unused checks in their possession; and banks must establish criteria to determine bad faith that results in non-cash of the check presented by the beneficiary.

The system will not show the status of the customer’s returned checks except to the bank to which they were reported. As for each bank only the returned checks reported by it will appear.

If the customer’s account is closed due to the number of returned checks reaching (3) or the customer’s bad faith, the system will transfer the customer’s status to “His account is closed due to returned checks due to insufficient balance.”

The bank has the right to close the customer’s account immediately when the first or second check bounces back, in the event that the bank discovers that the customer has bad faith, as the bank chooses “His account is closed due to bad faith” from the list of options available for reasons for closing the account.

Banks must establish criteria to determine bad faith that results in non-cash of the check presented by the beneficiary.

Every bank that opens a current account for one of its customers must obtain unconditional written approval from him to implement these controls, in addition to any other procedures in accordance with the bank’s policy in the event of the bounce of checks drawn from it.

CI-Net and banks must establish internal systems to protect the confidentiality of the data and information contained in the system of returned checks and accounts that were closed due to an insufficient balance, as well as to avoid misuse of this data and information. Moreover, authorized employees need to be informed that disclosing or misusing this information will result in penalties based on the applicable laws.

Banks are required to follow the previous rules and procedures when dealing with customers whose checks are returned due to insufficient funds.

In accordance with the bank's policy and the nature of its customers' behavior when dealing with checks, any bank may take additional, more stringent measures as it deems appropriate.

 

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