For accounts with a chequebook facility, licensed financial institutions must inform consumers in writing of:
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a. Any limit on the number of cheques permitted in their chequebook; and
b. The repercussions of returned cheques including fees, closure of the current account and/or a negative report to the Credit Information Agency.
Furthermore, it is learnt that onshore banks/financial institutions in the UAE have had instructions from the Central Bank to close a current account for two years if four cheques (from the account) are returned for insufficiency of funds in a given calendar year, and if this is repeated then the account is to be closed for three years. This was reported in the“Q&A on the new amendments to the Commercial Transactions Law regarding provisions relating to cheques issued under Federal Decree-Law No. 14 of 2020 dated 9/27/2020, amending some provisions of Federal Law No. 18 of 1993 promulgating Commercial Transactions Law” published by the Central Bank. Please see the below passage from the Q&A.
“As for the impact of this on the issuance of the chequebook, as per the CBUAE's instructions, for people to whom at least four cheques are returned due to insufficient funds, within a maximum period of one year between the first cheque and the fourth cheque, in this case, their accounts must be closed for a period of two years. If this is repeated, the period must be extended to three years, and their remaining unused cheques shall be recovered.”
Notably, the Q&A was issued in respect of the Federal Decree-Law No. 14 of 2020 dated 9/27/2020 amending provisions of Federal Law No. 18 of 1993. The Federal Law No. 18 of 1993 has since been replaced entirely by the Federal Decree Law No. 50/2022 Issuing the Commercial Transactions Law. It is however established that onshore banks in the UAE do have a right to close accounts in cases of returned cheques.
Therefore, as to whether your bank can close your account if“a third cheque” bounces or whether the policy requires your bank to close the account after the return of four cheques within a year, it would be prudent for you to peruse through the terms and conditions of your current account (as issued by your bank) to get more clarity on the matter. You may also contact your bank's customer helpline/your designated customer relationship officer (as applicable) to understand your bank's current and applicable policies on the subject.
As to the second part of your queries, reference may be made to the CBUAE press release titled 'Banks to Assess Credit Worthiness of Customers with Al Etihad Credit Bureau Before Issuing Cheque Books' dated December 10, 2018, whereby the following provisions (self-explanatory) may be noted.
“Before issuing customers with chequebooks, banks are now required to carry out checks with the Al Etihad Credit Bureau (AECB) to ensure the creditworthiness of their customers.
“Banks should advise their customers that returned cheques due to insufficient funds on the account will be recorded with the AECB and will negatively affect the creditworthiness of customers.”
Accordingly, if your current account is closed by your present bank for returned cheques due to insufficient funds, the matter will invariably be reported to the AECB.
Please note that this may adversely/negatively affect your overall creditworthiness score.
Therefore, if you subsequently apply to a different bank to open a new account (with a chequebook facility), such bank (in consideration of your application) will check your AECB creditworthiness score – the basis on which the bank may accept or reject your 'account opening' application.
It is also possible that, depending on the bank's internal policies, the CBUAE instructions (to the bank), the applicable laws and the basis of your AECB score, the bank may elect to impose certain restrictions on account usage, if the bank elects to accept your application.
Ashish Mehta is the founder and Managing Partner of Ashish Mehta & Associates. He is qualified to practise law in Dubai, the United Kingdom and India. Full details of his firm on: Readers may e-mail their questions to: ... or send them to Legal View, Khaleej Times, PO Box 11243, Dubai.