NSF cheques: understanding bank bans and their consequences

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The "wooden cheque". The expression alone is enough to cause concern. Writing a cheque without the necessary funds in your bank account is not a trivial act under French law. Far from being a simple oversight, it triggers a strict process known as a "banking ban", the repercussions of which can be particularly restrictive on a day-to-day basis. Understanding this mechanism, the role of the Banque de France, the possibilities for rectifying the situation and the penalties incurred is essential for anyone who uses cheques.

This article aims to demystify the consequences of bounced cheques, by clearly explaining how a bank ban works and the steps to take if you find yourself in this situation.

Payment incident: the starting point

It all starts with what the law calls a "payment incident". This occurs when your bank (the "drawee") refuses to pay a cheque you have written on the grounds that there are insufficient funds in your account or none at all. The mere fact that you are overdrawn does not automatically mean that there are insufficient funds in your account, if you have a confirmed and sufficient overdraft authorisation. The incident arises from refusal payment by the bank for this specific reason.

Refusal to pay may have consequences, including specific remedies if the cheque is unpaid for other reasons, such as loss, theft or forgery.

It is important to point out that your bank has a legal obligation before refusing payment and initiating the procedure. Article L.131-73 of the French Monetary and Financial Code requires the banker to "inform the account holder of the consequences of the lack of funds, by any appropriate means". This prior information should enable you, if the incident is the result of an oversight or a cash shortfall, to fund your account as a matter of urgency to avoid the rejection and subsequent ban. The bank must give you a reasonable amount of time to respond to this information. If it fails to do so, it may incur liability, even though this does not cancel the ban if the cheque is effectively rejected for lack of funds.

The rejection of a cheque drawn on a closed account is also treated as a payment incident for lack of funds for one year after the account is closed.

The banking ban mechanism

The role of your bank (the drawee)

1. Registration: It must record the payment incident in its books.
2. Injunction : It must send you an injunction letter. This letter, which must be sent by recorded delivery with acknowledgement of receipt, formally informs you of the rejection, enjoins you not to issue any more cheques (apart from the exceptions we shall see) and asks you to return all the cheque forms in your possession (and those held by any agents) to all your bankers. The letter must contain precise information defined by the regulations (article R.131-15 of the Monetary and Financial Code).
3. Statement: It must report the payment incident to the Banque de France.

The centralising role of the Banque de France

1. The Central Cheque Register (FCC) : It centralises all declarations of payment incidents and bank (and legal) bans in this national file. The FCC is essentially a file of people banned from issuing cheques.
2. Information for other banks : Through its access to the Bank Account File (FICOBA, managed by the tax authorities), the Banque de France identifies all the bank accounts held by the banned person. It then informs each of the banks concerned of the ban (article L.131-85 of the French Monetary and Financial Code). This is what makes the ban general and effective: it applies to all your accounts, at all banks.
3. The National Register of Irregular Cheques (FNCI) : Not to be confused with the FCC, the FNCI is a separate file accessible (via paying services such as Vérifiance) to retailers and other cheque beneficiaries. It enables them to check, before accepting a cheque, that it has not been reported as irregular (drawn on a closed account, issued by a banned person, or corresponding to a form reported lost or stolen).

The scope of the banking ban

Who is affected?

The ban applies to account holder on which the incident took place. The case of joint accounts is specific. Unless the joint account holders have designated one of them in advance and by mutual agreement to be solely responsible for incidents (who will then be banned from all his personal accounts and the joint account), the ban applies to to all joint holderson the joint account and on all their respective personal accounts (article L.131-80 of the French Monetary and Financial Code). Caution should therefore be exercised when opening and managing a joint account.

What about a representative (a person with power of attorney over the account) who issues a bad cheque? The situation has been debated, but case law seems to consider that the prohibition can also apply to personal accounts, in addition to the account holder.

What is prohibited?

A person who has been banned from banking is no longer entitled to issue payment cheques. This is the main prohibition. However, it retains the right :

• To issue withdrawal chequesto withdraw funds directly from your bank (if you have funds in your account).
• To issue certified cheques (the bank then blocks the corresponding provision) or to use bank cheques (issued by the bank itself, which guarantees payment).

Understanding general cheque payment and stop payment rules is crucial to avoiding future incidents and managing transactions with peace of mind.

As a result, as soon as a bank is aware of the ban (either because it has imposed it or because it has been informed of it by the Banque de France), it must no longer issue "traditional" cheque forms to the person concerned.

For how long?

The banking ban lasts five years from the date of the injunction, unless the situation is regularised before that date (article L.131-78 of the French Monetary and Financial Code). If several unpaid incidents occur, the five-year period runs from the date of the injunction. last injunction received.

Breaking the ban: regularisation

It is possible to end the banking ban before the five-year period has expired by "regularising" the payment incident(s).

How to regularise?

Under Article L.131-73 of the French Monetary and Financial Code, there are two main routes:

1. Pay the unpaid cheque directly: You pay the amount due to the beneficiary by another means (cash, transfer, etc.). Proof of this payment to your bank must be provided by the following means physical return of the cheque initially rejected. A simple receipt from the beneficiary is generally not sufficient.
2. Establish an adequate and earmarked provision : You pay into your account the funds needed to cover the amount of the unpaid cheque, indicating specifically your bank that this sum is intended for payment of this specific cheque. The bank must then block this sum in favour of the beneficiary for one year (article R.131-22 of the French Monetary and Financial Code). The payee can then claim payment from this blocked provision, even if the cheque initially returned unpaid.

We need to regularise all any cheques that have been dishonoured on the account concerned, in order to have the ban lifted. If incidents have occurred on more than one account, each account must be fully cleared.

Note that the law considers that the regularisation is acquired by the payment of the amount of the cheque. The lifting of the ban is not conditional on payment of any additional costs or damages owed to the beneficiary.

Historically, regularisation also involved the payment of progressive penalties to the Treasury. These penalties were abolished in 2010 so as not to aggravate the situation of people in difficulty.

Formalisation of the lifting of the ban

Once the adjustment has been justified to the bank (by the remittance of the paid cheque or the constitution of the provision), the bank must :

• Record the regularisation in its registers.
• Issue you with a certificate of regularisation.
• Inform the Banque de France of the adjustment within two working days (article R.131-31 of the Monetary and Financial Code).

The Banque de France then updates the FCC and informs the other banks concerned that the ban has been lifted (article R.131-42). You then regain the right to write cheques (although a bank may still refuse to issue you with a chequebook for other reasons relating to your situation).

Special cases

• Insolvency proceedings : The opening of a safeguard, receivership or compulsory liquidation procedure has complex implications for regularisation (suspension of payments, extinction of undeclared claims, lifting of the prohibition when a plan is adopted, etc.). Approval of a conciliation agreement may lift the ban.
• Over-indebtedness : An over-indebtedness plan does not automatically result in the ban being lifted. However, if the plan results in the cancellation of debts (personal recovery procedure), the cheques concerned will be cancelled.

Bank charges

The bank is entitled to charge a fee for rejecting an NSF cheque. However, to avoid abuse, these charges are capped by decree (article D.131-25 of the French Monetary and Financial Code). The ceiling depends on the amount of the cheque (currently €30 for a cheque of less than €50, and €50 for a cheque of more than €50). This limit includes all the charges invoiced by the bank for this incident (prior information letter, injunction, rejection charges, etc.).

Challenging a banking ban

It can happen that a bank ban is imposed wrongly. What should you do if this happens?

Cancellation by the bank

If the incident is the result of a manifest error on the part of the bank (for example, rejection when sufficient funds were available, account-keeping error, failure to take account of a valid credit facility), you can ask your bank to cancel the incident report. If it recognises its error, it will ask the Banque de France to cancel it (article R.131-27 of the Monetary and Financial Code). Cancellation is also possible if the provision has disappeared for a reason for which you are not responsible (fraudulent debit by a third party, for example).

Legal recourse

If the bank refuses to cancel or if you dispute the validity of the incident for other reasons, you can take your case to the civil jurisdiction (Judicial Court or Protection Litigation Judge, depending on the case). This legal action is not automatically suspensive, i.e. the ban continues to apply during the proceedings. However, the judge (including in summary proceedings, i.e. as a matter of urgency) may order the suspension of the prohibition if it considers that there is a serious dispute (article L.131-79 of the Monetary and Financial Code).

Criminal sanctions (currently residual)

It is essential to understand that the main offence of issuing an uncovered cheque has been abolished of the Criminal Code in 1991. Issuing a cheque without sufficient funds is no longer, in itself, a criminal offence punishable by imprisonment or a criminal fine (although it may, in very specific cases of elaborate manoeuvres, be reclassified as fraud).

However, certain cheque-related offences remain in the Monetary and Financial Code:

• Withdrawal of the provision (article L.163-2) : Voluntarily withdrawing funds after issuing a cheque, with the intention of harming the beneficiary.
• Unlawful freezing of the advance (article L.163-2) : Stop payment on a cheque for a reason not authorised by law.
• Violation of a prohibition (articles L.163-2 and L.163-7) : Issuing a payment cheque while under a banking ban or a judicial ban (which may be imposed by a criminal court as an additional penalty for other offences).

The management of an NSF cheque, for which the emission bases are essential to understandThis can be a complex issue. If this sounds like you, please do not hesitate to contact our firm to discuss your options and our expertise in banking and financial law.

Sources

• Monetary and Financial Code (in particular Book I, Title III, Chapter I and Book I, Title VI, Chapter III)
• Commercial Code (provisions relating to insolvency proceedings)
• Consumer Code (provisions relating to over-indebtedness)

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