Insufficient Funds in your chequing account? Do not draw a cheque

Operation of Chequing Accounts
Do not issue a cheque with insufficient funds in your account. You may be fined or imprisoned.
The customer alleged that she is the holder of a chequing account at a bank and that she used her cheque to purchase goods at a retail outlet. Two days later, she deposited cash into her chequing account via the ATM machine to cover the cheque drawn.

Her bank received the cheque for clearance two days after it was drawn but before the deposit was cleared. The cheque was rejected and returned to the outlet from which the customer purchased her goods, and caused penalty charges to be made on her account in respect of the transaction.

When the cash deposit was finally cleared by the bank, and the cheque was re-deposited by the outlet, on the instruction of the customer, it was again rejected by the bank and returned because of insufficient funds. The account only had a few dollars more than stated on the cheque and the penalty charges that were debited to the account for the first transaction as well as the second, left the account with insufficient funds to cover the cheque.

The customer approached the Office of the Financial Services Ombudsman for assistance. She was advised that the bank was within its right to continue to dishonor her cheque because:

  • her cash deposit to cover the amount was made after the cheque was drawn; and
  • she did not have sufficient funds in her chequing account to cover the penalty charges incurred for the cheque which¬†was rejected on more than one occasion.

She was also informed that under the “Negotiable Instruments (Dishonored Cheques) Act”, it is illegal to issue cheques on accounts when there are insufficient funds to cover same.

Lessons learnt

Do not issue cheques if you are aware that there are insufficient funds in your account. You will incur penalty charges by the bank for processing the returned cheques. Your credit worthiness will be affected and this may prevent you from getting a loan from the bank in question or even another bank. Further, it is illegal to issue cheques with insufficient funds and may result in you being fined or even imprisoned.