System will bring an end to the practice of post-dated cheques
The United Arab Emirates central bank will introduce a direct debit payment system on June 15, bringing an end to the practice of requesting a blank cheque for payment in the Gulf state.
“The implementation of direct debit will enable customers to make regular, automatic payments from their banks accounts towards mortgage loans or credit card payments or personal loans installments,” the bank said in a statement.
In the UAE writing cheques that bounce is a criminal offence instead of a civil one.
The move is designed to eliminate the need for post-dated cheques, which are frequently used as a guarantee by businesses and individuals for everything from apartment rentals to multi-billion dollar deal.
The practice has been heavily criticised in recent years following a string of cases in which several high profile businesspeople were jailed for writing bad cheques.
The Gulf state has introduced several measures aimed at reducing its reliance on post-dated cheques in the last year. The central bank last year rolled out a set of rules aimed at limiting loans to individuals and capping banking fees in the country.
Authorities in October relaxed the penalties for Emiratis who write bad cheques and in November freed around 290 UAE nationals who were in prison for bouncing cheques.
UAE President Sheikh Khalifa Bin Zayed Al Nahyan in May allocated around AED5m to settle defaulted loans for each indebted Emirati. In August, the Central Bank ordered banks to extend maturities on personal loans held by Emiratis by more than four years.