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Old 21st October 2020, 16:49   #16
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Re: Federal Bank wants 6 blank cheques for car loan - Now what?

As many have pointed out , every one who goes through the bank loan process has to issue a few cheques. What you can do is get an acknowledgement that you have deposited the cheques with them. In all cases its either returned or routinely destroyed after closure and issuance of NOC.

One can also consider opening an escrow account for a limited liability say 3-4 months of EMI. However , this may not work always.
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Old 21st October 2020, 17:09   #17
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Re: Federal Bank wants 6 blank cheques for car loan - Now what?

Quote:
Originally Posted by ABHI_1512 View Post
The practise of keeping blank cheques is usually done by public sector banks only and that’s what I said and meant.
It's not only public sector banks. Even private sector ones like HDFC also asks for 6 blank cheques for vehicle loan. (I had provided that on HDFC car loan - 5 Years back)
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Old 21st October 2020, 17:16   #18
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Re: Federal Bank wants 6 blank cheques for car loan - Now what?

Quote:
Originally Posted by ABHI_1512 View Post
And where did I mention that Federal Bank is a public sector bank ? The practise of keeping blank cheques is usually done by public sector banks only and that’s what I said and meant.
There is a lot of difference between "followed only by" and "usually done by".

And going by several posts which have come above, this looks like standard practice by several banks - both private sector and public sector across the industry.
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Old 21st October 2020, 17:27   #19
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Re: Federal Bank wants 6 blank cheques for car loan - Now what?

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Originally Posted by binand View Post
They all do this, and for all loans - not just car loans. The reason is to make sure that they can hold a criminal case under NI Act against you in case your loan account goes bad.

Earlier, I used to give those cheques and then immediately put "stop payment" on those cheque numbers via netbanking. But then a lawyer colleague advised me that the mere possession of those cheques by the bank in proof of the liability on my side.

They all return those cheques too, when the loan ends.
As mentioned by Binand, nowadays it seems this has become a standard procedure. I have recently got a home loan and most banks insisted on blank cheques. Not sure about the legal aspect of this though. Does sound a little unnerving especially with all kinds of bank frauds happening. I tried evading the process but had to give in when I found it be a practice across the banking industry.
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Old 21st October 2020, 17:36   #20
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Re: Federal Bank wants 6 blank cheques for car loan - Now what?

Presuming there is no intention by the car buyer to default on the loan, what is stopping one from handing over even blank cheques and following it up immediately with a cheque cancellation request?
That would provide the needed safety while reducing disbursement process friction I hope.
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Old 21st October 2020, 20:32   #21
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Re: Federal Bank wants 6 blank cheques for car loan - Now what?

I remember giving ‘ Undated ‘ cheques. I don’t recall any Bank asking me to submit Blank Cheques.

When the loan tenure is over or if the loan is ore-closed , the banks diligently return those cheque leaves.

The practise I have encountered is for 3 or 6 leaves with amounts equal to the monthly EMI and undated , but never a blank one.
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Old 21st October 2020, 21:40   #22
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Re: Federal Bank wants 6 blank cheques for car loan - Now what?

Quote:
Originally Posted by Sree73 View Post
It's not only public sector banks. Even private sector ones like HDFC also asks for 6 blank cheques for vehicle loan. (I had provided that on HDFC car loan - 5 Years back)
Quote:
Originally Posted by Ramon View Post
And going by several posts which have come above, this looks like standard practice by several banks - both private sector and public sector across the industry.
This practise of asking for blank cheques were usually done by public sector banks earlier and I guess, going by some comments in the thread, has now extended to some private banks as well.

No bank, I say- no bank can ask for blank cheques but still they do it for their own internal security practises. If anyone asks for a blank cheque then the customer should flatly refuse and ask for any written RBI circular which states the same. The agreement should have this clause which in reality doesn’t exist at all.

Yes, the practise of PDC with amounts pre filled and signed by the customer is there And after the completion of loan tenure, the cheques are duly returned.

No one should provide blank cheques to anyone. The option of stop cheque is there with the banks but why give the blank cheques at the first place. I have been through three vehicle loans over a period of 20 years and not one needed me to give blank cheques and my lenders included a private bank, a public sector bank and also a NBFC.

After the banking ombudsman came into the picture and consumer rights tightened, banks have mended their ways to a great extent but some still practise things that are surely avoidable. PSU banks started something which some private lenders also followed when some officer decided to play safe from bank’s end but which is entirely illegal. Despite that if some consumer wants to give blank cheques, then it’s entirely the consumer’s decision.

Last edited by ABHI_1512 : 21st October 2020 at 21:44.
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Old 21st October 2020, 21:56   #23
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Re: Federal Bank wants 6 blank cheques for car loan - Now what?

I actually thought that in present situation banks need customers to take loan, here it appears that bank is actually discouraging. I was speaking to a bank manager couple of weeks back and he told me that they have more deposit growth than loan growth. I would not hand over blank cheque to anyone irrespective of reasons. I think, there are other options available in market to avail vehicle loan without handing over blank cheque.
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Old 22nd October 2020, 00:18   #24
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Re: Federal Bank wants 6 blank cheques for car loan - Now what?

As others have mentioned in the thread, please do not issue blank cheques at any cost:

(1) Any amount filled in subsequently that gets dishonored can create a legal liability for you.

(2) I did a loan process with a PSU recently. They asked me for cheques but with EMI amounts filled in.

(3) Call up RBI in front of the bank manager. Write to the CEO of Federal Bank and ask if this is standard procedure and the reply is in the affirmative, please mark a copy to RBI.
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Old 22nd October 2020, 00:21   #25
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Re: Federal Bank wants 6 blank cheques for car loan - Now what?

In the worst situation, the cheques should have the amount totalling to the value of the loan. And should be accompanied by a legal letter drafted by a lawyer stating the purpose of the cheques.

But on the original point, OP had made a mistake by taking the car without clarifying. Now he will need to invest in changing the locks and ignition!
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Old 22nd October 2020, 00:58   #26
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Re: Federal Bank wants 6 blank cheques for car loan - Now what?

Banks ask for it. I don’t know if it’s the standard operating procedure, but I remember giving a blank cheque for getting my home loan cleared by an NBFC/ private lender. If you’re too much concerned about it being misused, simply issue a stop payment advice to your bank for that particular cheque number, once your loan is cleared.

As others pointed out, it’s actually used in case of repeated defaults to hold a criminal case against the borrower by submitting the cheque for full value of outstanding balance; which is obviously expected to bounce. As per the section 138 of Negotiable Instruments Act, bouncing of cheque is a criminal offence and it can land the offender in jail if the payee decides to press the charges.

Regards.

Last edited by saket77 : 22nd October 2020 at 01:02.
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Old 22nd October 2020, 08:33   #27
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Re: Federal Bank wants 6 blank cheques for car loan - Now what?

Vijay shares the following updates:

Quote:
Thank you so much GTO for putting this on the forum. Thanks to all the members who took their valuable time off for their inputs. A lot has happened between when I raised the query and now. Let me briefly summarise as to what transpired.

The insurance agent from the showroom called me a few days later to check on the cheque status. I politely informed him that I was waiting for the Branch Manager to call me, as per our previous communication. He then went on to explain the same thing about how it is their “process” to collect blank cheques as a measure of security for them. And many have in fact given them without hesitation.

At this point, I again re-iterated my initial stand, that I am not giving blank cheques and will write down the amount on the cheques. He then proceeded to give me a long lecture on how it is their process to collect the blank cheques, how people default on loans etc etc.

I then asked him to send me an email stating that it is a part of their “process” to collect blank cheques from customers as a token of security and the said cheque will not be misplaced or misused at any cost. To this, there was a complete change of tone in the manner in which he had started the conversation and thereafter. Within few minutes, he told me to write down the EMI amount on the cheques and give it to the showroom guys. Case closed!

I immediately went to the showroom, handed over the cheques, with the amount written on them. Got my spare key and drove off, admiring the Thar all this while.

However, going by the discussion in the thread, looks like there is a grey area here. Someone mentioned that the banks bounce the cheque for defaulters to charge them with criminal cases. I am not sure if it is legal for banks to bounce the cheques. But then I am no expert in the legal aspect of things. I will definitely check this later with my lawyer.

Thanks for all the inputs.
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Old 22nd October 2020, 08:47   #28
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Re: Federal Bank wants 6 blank cheques for car loan - Now what?

Nice. Glad it is resolved for Vijay.

Gentle , yet firm push backs and speaking up for / with the right reasons does work indeed.
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Old 22nd October 2020, 11:35   #29
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Re: Federal Bank wants 6 blank cheques for car loan - Now what?

Quote:
Originally Posted by GTO View Post
Vijay shares the following updates:
Thank goodness for this update. I am really surprised at some of the posts here which are either half baked legal theories or giving reckless suggestions based on "practice".

1. Undated vs Blank cheques: Please understand the difference between these two. It is understandable if as security a lender requires an undated cheque, since he will only bank it on default. Usual practice should be to take perhaps 6 EMIs or something as undated cheques kept clearly as collateral. This is NOT THE SAME as a blank cheque. You must write the exact amount you are issuing this cheque for.

This way you also know that at the most an accelerated liability that can come upon you via a PDC is 6 months worth of EMIs.

2. Criminal liability: Cheque bouncing where it is a payment liability does indeed entail criminal liability under 138 NI Act. However there are some judgments where some High Courts have held (note this would not hold good pan India as the law) that cheques taken as security / collateral cannot result in S. 138 criminal liability and it should only be used where the cheque was issued as actual mode of payment. I will leave it at this but again, this does not mean one should go around issuing blank cheques. The law can always evolve either way on this.

3. Many banks do this: This is no reason to simply roll over and comply as some have indicated. There are many practices that can and should be questioned even if many banks / institutions do it. I am happy that the OP stuck to his ground and insisted on the bank giving this in writing etc, resulting in a more sensible outcome.

Banks are not "doodh ka dhula" either and asking someone to issue a blank (in amount) cheque is simply out of order from a procedure standpoint, even if not specifically illegal.
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Old 22nd October 2020, 12:05   #30
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Re: Federal Bank wants 6 blank cheques for car loan - Now what?

I have had two home loans processed (CITI) and two car loans (ICICI and ORIX) respectively. Never have I had to give a blank cheque. Either they were an EMI (or a multiplier) or the lump-sum for company lease. Good that Vijay stood to his guns--for financial safety.

I found it quite naive of the dealer to hold onto the spare keys. They took advantage of the fact that payments had been made, cancellations at this moment would complicate matters manifold for the customer, and the pain should be borne by the end user, since the deal is pretty much over.
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