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What is a bounced or bad cheque? What happens if I issue a bounced cheque? Will I be blacklisted?

A bad cheque is commonly referred to as a bounced cheque.

A bad cheque refers to a cheque issued by an account holder, dishonoured and returned by the drawee bank when it is issued:
  1. from an account with insufficient funds [1]; or
    It is not the duty of the bank to call you, although some banks may call you, in the event a cheque is presented against sufficient funds in your account. The cheque will still be returned as a cheque drawn against "insufficient funds".


  2. from an account, which has been closed [3] for reasons other than being blacklisted under the Credit Bureau through the existing Biro Maklumat Cek (BMC) System or closed for legal reasons such as bankruptcy; or

  3. from an account to be drawn against proceeds of cheques deposited that have not been cleared yet for use by the account holder. This is known as "Effects not Cleared" [2].
    The bank will not hold such cheque and will return the cheque as cheque drawn against "Effects not Cleared".


Issuing bad cheques


Although, banks have imposed penalties for bad cheques, this has not deterred some account holders from issuing bad cheques.

A bad cheque not only affect the relationship between the issuer and recipient of the cheque but more importantly, the credibility of cheques as a mode of payment in the country.

When will a current account holder be blacklisted? What are the implications? How to clean a blacklisted record?

Issuing bad cheques creates problems and has serious consequences...

Each time a a bad cheque is issued, it is treated as a bad cheque incident. The drawee bank [4] will issue you a warning letter for each bad cheque incident.

A bad cheque offence occurs when you have committed three (3) bad cheque incidents within 12 months from the date of the first incident on the same account and it works on a rollover time frame. You will be deemed as a bad cheque offender.

Bad cheque offence works on a rollover time frame
Bad cheque offence works on a rollover time frame


When a bad cheque offence is committed:
  • The drawee bank will report your name to the Credit Bureau.

  • The drawee bank will take the necessary steps to close your current account.

  • Your name will be blacklisted and included in the list of bad cheque offenders.

  • Your name will be circulated to all other banks in the country to effect a mandatory and simultaneous 'nationwide closure' of all your current accounts within one month.

  • You are required to return all unused cheques to your banks.

  • You are prevented from opening any new current accounts, including joint-account, with any banks in Malaysia during the prohibition period.

  • You will also be subjected to a probation period on expiry of the prohibition period.

  • Your applications for loans, credit cards and other banking facilities may be affected as the occurrence of bad cheques may be adversely interpreted by banks.

Bounced Cheque: Accounts affected by nationwide closure
Accounts affected by nationwide closure


Prohibition and Probation Periods

Prohibition period refers to the period during which you will not be allowed to operate or open a new current account with any bank in Malaysia. It starts from the date of the third bad cheque incident until after the prohibition period ends, which is the end of the month, of the prohibition period.

The probation period starts immediately after the expiration of the prohibition period. During the probation period, you are allowed to open a current account but a further bad cheque offence during this period will result in you being classified as a second level bad cheque offender, which will result in an extended prohibition period.

Any offence committed after the probation period will be considered as the first offence.

The length of prohibition and probation periods depends on the number of times you are blacklisted as follows:

Bounced Cheque: Prohibition and Probation Periods
The length of prohibition and probation periods depends on the number of times you are blacklisted


Your name will be removed from the bad cheque blacklisting and you will be given a clean record once the probation period is over and you do not commit any further bad cheque offence during the probation period.

If you are blacklisted as a bad cheque offender, you can arrange for your blacklisted account to be redesignated as a "special account" or open a "special account" to cash incoming cheques and make payments during the prohibition period.

A "special account" is a current account without checking facilities which enables a bad cheque offender to make and receive payments during the prohibition period.


However, the redesignation or opening of such "special account" is at the discretion of the respective banks and subject to the following conditions:
  • Applicable only for companies, partnerships, sole proprietors and individuals with overdraft facilities.

  • Available to only the first and second time offenders.

  • All unused cheques from the current account must be surrendered to the bank. Thus, payments can only be effected through cash withdrawals, bankers' cheques, bank drafts, transfers or cashiers' orders.

What is Biro Maklumat Cek (BMC)?

Biro Maklumat Cek (BMC) is a central bureau set up by Bank Negara Malaysia (BNM) in 1988 to monitor bad cheque incidents.

In March 2002, Bank Negara Malaysia (BNM) consolidated the operations of Biro Maklumat Cek (BMC) with the Credit Bureau when the Central Bank of Malaysia Act 1958 [Act 519] was amended. As a result, the operations of Biro Maklumat Cek have been transferred to the Credit Bureau, which is a bureau set up to collect and disseminate credit information, including information on bad cheques, to banks and financial institutions.

HOW TO AVOID ISSUING BAD CHEQUES

To avoid a bad cheque incident, the following precautionary measures should be observed:

  • Always check that there are sufficient funds in your current account before issuing any cheques.

  • If you need to transfer money from an account into your current account to make a payment, always check with your bank to ensure that the money has been credited before issuing a cheque.

  • Inform your bank by making a stop payment order on a cheque that is stolen or missing to avoid the cheque from being paid or presented and dishonoured.

  • If you wish to issue a cheque using funds from a cheque deposited earlier, check with your bank to ensure that the cheque that was deposited had been cleared for payment. Be aware that clearing periods for local and outstation cheques differ.

  • Keep your cheque book in a safe place to avoid the risk of theft.

  • Notify your change of address to the bank. This ensures that you will be informed by the bank on important matters without unnecessary delay and prevent wrongful delivery of correspondences.

YOUR RIGHTS AS A CUSTOMER
  • To inquire from the bank the balance in your current account before issuing any cheques. This is to ensure that all cheques issued will be honoured.

  • To be notified in writing on the first, second and third bad cheques incidents and the reasons for the respective returned cheques.

  • To be notified in writing before your account is closed.

  • To check your current account's blacklisting status with your bank.



References
  1. ^ 'Insufficient funds' also known as non-sufficient funds (NSF), refers to the situation where the account has no-funds or the balance in the accounts is not enough to cover payment of the cheque.


  2. ^ 'Effects not cleared' means cheques and other items paid in by a customer for the credit of his or her account, of which the cheque is still pending clearance by the drawer's bank. Although these amounts will be shown in the customer's balance, it is still not cleared in the books of the bank. The bank is under no obligation to pay any cheques drawn against items not yet cleared.


  3. ^ A bad cheque issued from a closed account e.g. account closed voluntarily will be monitored by the drawee bank for a 12-month period from the date the account is closed.


  4. ^ 'Drawee bank' also known as paying bank, refers to the bank that is instructed by the drawer to pay the amount of a cheque drawn on it. 'Drawer' refers to an account holder who directs a bank to pay a sum of money stated on a cheque drawn on it.


  5. BankingInfo on "Bad" cheques - A consumer education programme by Bank Negara Malaysia.



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Knowledge Base ID :   1590
Last Reviewed :   April 9, 2018
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