Seminar discusses problem of dishonoured cheques

Parliamentary Secretary Edwin Vassallo said yesterday the government was committed to working with the constituted bodies on legislation to solve or prevent problems arising out of the use of payment instruments such as the cheque book.

He was speaking at a well-attended seminar held by the Malta Association of Credit Management (MACM) which discussed the problem of dishonoured cheques. A draft bill entitled the Dishonoured Cheques Act was presented at the seminar.

Mr Vassallo said the government has already accepted suggestions made by the MACM on late payments and intended to amend the late payment provisions within the Business Promotion Act.

The seminar was opened by association president Geoffrey D. Borg who said the situation on dishonoured cheques in the last few years had gone from bad to worse.

"We are facing a daily barrage of cheques coming from all quarters as individuals misuse the trust once placed in a cheque book."

He said that reasons for this upsurge included the failure of the legislative system to cope with the fraudulent use of cheques, the increased controls put on credit limits by the banks in Malta, the inefficient processing of cheques with today's cheque clearing system, the increase in over-trading by operators all round without the right capital injections, and the lack of use/availability of more secure alternatives such as debit/credit cards or electronic transfers.

Dr Roderick Zammit Pace reviewed and analysed current legislation relating to cheques.

Retired banker John Consiglio underlined the need for a detailed study to gauge the extent of the problem but also said that "to do nothing is not an option." While calling for greater use of electronic modes of payment, he also questioned why cheque guarantee cards had still not been introduced in Malta.

The draft bill was presented by Dr Peter Fenech, who said that legislation was needed, firstly, to bring about a change of mentality and stop the arrogance with which some people issued cheques.

The bill proposes that whenever a cheque is dishonoured, and no settlement is made within two weeks, the aggrieved party may give notice in writing to the drawee, and the police and the Central Bank will be notified.

The bill provides for penalties upon conviction of between Lm50 and Lm10,000 for a first offence. Imprisonment of up to six months may also be ordered for subsequent convictions within a year.

The courts may, apart from ordering payment of a sum equivalent to the cheque, also order other compensation for any pecuniary loss suffered by the aggrieved party.

The police commissioner would have discretion about whether or not to proceed with a case when a dishonoured cheque is for less than Lm200.

The bill provides that when a drawee dishonours more than three cheques within a year, the drawee bank would be obliged to confiscate all cheque books and report the matter to the police (whether or not the aggrieved party wants to).

A Register of Dishonoured Cheques will be established to record drawers of dishonoured cheques when three or more cheques are dishonoured within six months or when the value of a dishonoured cheque or cheques exceeds Lm500. Current accounts in the name of the person involved would be frozen and the banks would also demand the return of unissued cheques.

A person would be de-registered when cheques would have been honoured, when a fee is paid on every dishonoured cheque, and after three years lapse from the last dishonoured cheque.

The bill includes a clause of presumption of knowledge and it would thus be up to the person issuing the cheque to prove he did not know there were insufficient funds for payment.

In his speech Mr Vassallo welcomed the draft as a good starting point for legislation, but he also insisted that legislation should be such as not to discourage the use of the cheque book for fear that a mistake would lead to prosecution.

He said he had asked the banks about the extent of the problem of dishonoured cheques and been told that the percentage was not high, but there was no doubt, he said, that this was a problem which needed to be tackled, along with other problems which may arise in other forms of payment.

Interjecting, MACM president Geoffrey D. Borg said that with more than nine million cheques drawn annually, a percentage of dishonoured cheques of 0.1 still meant 9,000 cheques.

Mr Vassallo, concluding, looked forward to further talks on problems in modes of payment but also underscored the fact that businesses had to be careful and disciplined in their choice of payment and their choice of clients.

Peter Fenech (second from left) discussing the proposed Dishonoured Cheques Act yesterday with (from left) John Consiglio, Geoffrey D. Borg, Edwin Vassallo and Roderick Zammit Pace.