The CBN Deputy Director, Banking Supervision, Mr. Stephen Nwadiuko. recently hinted on the intention of Central Bank of Nigeria to stop issuers of Dud cheques from operating current account.
According to him, CBN is working with the Credit Bureaus in the country to build a database of customers of banks who issue dud cheques three times within a period of time and bar then from operating current account.
Nigerian Banker takes a look at Dud Cheques, it’s meaning, implications and CBN efforts at curbing the menace.
Dud is defined by the Oxford English Dictionary as “a thing that failed to work properly or it is otherwise worthless” the same dictionary defines a Cheque as “an order to a bank to pay a stated sun from the drawer’s account written on a specially printed form”.
A Dud Cheque therefore is “a bill of exchange issued by a bank account holder to a third party for which when presented within a reasonable period of time is dishonored on the ground of lack of fund or insufficient funds in the account of the issuer of the Cheque”
The Financial Times in its lexicon defines Dud Cheque as “a Cheque that cannot be paid because the person who wrote it has no money or not enough money in their bank account”
The dishonored cheques Act of 1977 specified a 2 years jail term without the option of fine for issuing a bounced or dishonored Cheque. In the case of an individual when found guilty of the offense and for corporate organization the penalty is a fine of not less than #5,000 (five thousand) Naira.
Despite the Act however the menace of Dud Cheque in Nigerian financial system has been worrisome without abating. For instance a total of 167,507 dud cheques were processed by Deposit Money Bank(DMB) in 2012, with a total amount of over #166Billion involved. With this alarming figure however only very few arrests and prosecutions were made.
Implication of Dud Cheques
- Low confidence in the use of financial instrument with its attendant effect on the cash light policy of the CBN.
- Increase in cost of banking services bank will have to process more cash transactions as a result of loss of confident in banking instruments.
- Increase in issuance of Dud cheques raises the incident of crime and facilitate money laundering by obliterating the audit trace.
Efforts By The CBN
CBN as a regulator has put a lot of measures in place to check the menace of dishonored cheques. It has mandated banks to:
- Recall/Cancel all unused Cheque books issued to serial issuers of dud cheques upon CBN compilation and dissemination of information same.
- Bar the affected customers from use of clearing system for a period of 5 years.
- Forward the names of Dud Cheque offenders to the three private Credit Bureau (CRC, Credit Registry & XDL) and the CBN CRMS. The names are to be listed with the Credit Bureaus for a period of 5 years.
- Bar the offender from accessing credit facility for a period of 5 years.
- Perform status checks on potential customers from CRMS and at least 2 other Credit Bureau BEFORE onboarding a customer.
- Any bank that fails to report serial issuer of dud cheques will be sanctioned.
Further measures taken by CBN includes
- Direct prosecution of serial offenders.
- Offenders handed over to EFCC and other security agencies for prosecution.
- Banks mandated to intensify campaign against the issuance of dud Cheques using every available means.
- Government advised to support CBN by creating public awareness on the consequent of of issuing dud cheques – IT IS A FINANCIAL CRIME.
- Government to create stronger legal backing for the enforcement of the act.
- Existing and prospective Customers of banks are to pledge not to issue cheques against unfounded accounts.
Nigeria Banker believes that the new measure of stopping the serial issuer of Dud Cheques from running current account in Nigerian banks is the right step that will finally put a stop to the menace and restore confidence to the use of financial instruments.