The new regulation on bouncing cheques, which came into force on February 5, is expected to address people’s concerns about such negotiable instruments without sufficient funds on the issuers’ accounts, according to the Central bank.

It seeks to improve financial accountability and customer experience, ensure fairness, and offers a window for cheque issuers to resolve insufficient funds issues before facing consequences.

Key changes include a more lenient approach for first-time defaulters and relatively higher penalties for repeated violations.

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In the regulation, a bouncing cheque means one which is not paid despite the provided notification, due to insufficient funds or any other reason associated with insufficient funds on the drawer (issuing person)’s account within the 60-day validity period of the cheque or when a cheque is issued to a dormant account.

Here's how these new rules could impact your finances and credit standing.

Grace period for settling bounced cheques

According to the regulations, a paying institution must, upon realisation of a bounced cheque, provide a notification to the drawer (person who issued it for payment purposes) on a bouncing cheque incident by granting him, her or it a settlement period of five calendar days – following the notification – to settle the issue.

When the drawer fails to settle the issue during the granted period, a paying institution directly reports the bouncing cheque to the central bank and to the Credit Reference Bureau (CRB) – an entity which provides credit reference services in Rwanda – in accordance with reporting requirements in order to affect negatively a cheque defaulter’s credit score.

This also results in subsequent applicable administrative sanctions against the drawer.

The notification shall be made to the drawer’s provided address in any form of communication that can be traced or proven by a paying institution – a financial institution at or through which a cheque is payable and to which the cheque is sent for payment.

According to the Governor of National Bank of Rwanda, John Rwangombwa, under the previous regulation, when cheques were presented to a bank and the drawer’s accounts lacked due funds, they were immediately reported to CRB.

"We found that many people would have addressed that issue if they were informed,” he said, adding "we had many people that had erroneously faced challenges with bounced cheques.”

"So, what we introduced is that before a bounced cheque is sent to CRB, the issuer is informed, and is given the opportunity to address that issue immediately. If it’s not addressed in five days, then it is reported to CRB,” he said.

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Bernard Nsengiyumva, Director of Policy and Regulation at National Bank of Rwanda, told The New Times that while it's not a good practice [issuing a bouncing cheque], some may issue a cheque without knowing that their accounts have sufficient funds.

"So, the regulation is giving them the possibility, within five days, to settle the issue before they are being reported to CRB,” he said.

"I think that will facilitate clients to manage their cheques effectively and then to give opportunity to those who have issued cheques without sufficient funds on their accounts to settle the issue within those five days,” he observed.

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Tougher penalties for repeat offenders

The new regulation provides that administrative sanctions resulting from issuing a bounced cheque are imposed on a drawer who signed on the very cheque that bounced for individual accounts, while for the corporate accounts, sanctions are imposed on the legal entity that appears as the drawer of the cheque.

A cheque defaulter shall be subject to a pecuniary sanction (monetary penalty) equal to 10 per cent of the bounced cheque amount capped at Rwf10 million; and be subject to immediate return of all cheques issued by financial institutions intended for potential payments, in order to deprive the defaulter of their use for set calendar days.

The period of depriving a defaulter of cheque use for payment purposes is 45 calendar days counted from the date of the first incident, 90 calendar days from the date of the second incident, 180 calendar days from the date of the third incident, and 365 calendar days from the date of the fourth incident and above.

Also, the defaulter is deprived of access to any credit facility, a new cheque book in any financial institution, or any lending institution for the corresponding period, depending on the number of times they issued a bouncing cheque.

In the 2018 regulation, the stipulated sanctions would apply for a period of six months for the first incident and one year for subsequent incidents.

Still, the monetary sanction provided for in the 2018 regulation was equivalent to 20 per cent of the amount [due payment] mentioned on each bouncing cheque – regardless of how many times one defaulted – and there was no cap on the penalty.

This implies that the new regulation is relatively tolerant towards first-time cheque defaulters, and tough with those who default many times.

Conditions for removal of sanctions

The sanctions provided for by the regulation shall be removed dependent on a proof of payment of all bouncing cheques drawn by a cheque defaulter and certified by the paying institution. This proof shall be indicating the date of settlement of the cheque.

Other conditions are a clearance from the competent authority such as court or investigation bureau or prosecution for the closing of criminal proceedings; a proof of payment of monetary sanction for each bouncing cheque, and a completion of the corresponding sanction period.

The management of the paying institution shall on behalf of the cheque defaulter, apply to the central bank for the removal of sanctions.

Central bank’s Nsengiyumva said, previously, if you have issued a bouncing cheque, to be removed from the Credit Reference Bureau – implying getting rid of a situation that affects the defaulter’s creditworthiness and cheque use for payment – the obligations one was required to meet include paying the due amount to the drawee, and 20 per cent of the amount mentioned on that cheque as a monetary sanction.

"Now we are reducing the 20 per cent [pecuniary sanction] to 10 per cent,” he said, underscoring the reason for also introducing a cap on the monetary penalty – Rwf10 million.

"In the regulation we are also putting a cap that you cannot exceed, even if you have issued a cheque with a huge amount. That also facilitates someone who has issued a cheque with a huge amount,” he said, observing that 20 per cent of the monetary penalty, which was previously set, could be a hindrance to a cheque payment by the issuer.