[GTO]

Vijay asks the following question via this Team-BHP page! What to do? My advice = no way would I give a blank cheque to anyone! Would instead proceed with another, more ethical lender.

Hello Team-BHP, I am an avid reader and follower of this community.

Today I am reaching out for some suggestions from the esteemed members of this forum for my current predicament. Problem Summary: I purchased a new Mahindra Vehicle this month via a car loan from Federal bank. As a part of their paper work procedure, they are asking for 6 blank cheques in the name of the Dealer/Bank.

I would like to point out that the dealership has been very understanding so far about my stand on issuing blank cheques.

- Before I got the delivery of the vehicle, I had made it clear that I am not giving any blank cheques . I will give the cheques, provided they tell me the amount I should be writing on them. However, they are insisting on blank cheques.

- When asked about why do they need blank cheques, their take on it is “Sir, we need this for security” , “Sir , do not worry, its completely safe”.

- However, my spider sense is tingling. I do not understand this process, because in case of non-payment on my end, they do have direct debit access from my bank account. Why take blank cheques?

- I have spoken to my CA about this, and he mentioned not to issue blank cheques at any cost, period. Now as a collateral, while taking the delivery, the dealership has kept the spare key with them. They won’t give it until this issue is sorted.

I have asked to speak to the Branch Manager in charge. Any suggestions or pointers from the esteemed members is much appreciated. I hope I am not over thinking this situation.

P.S. This is my second car purchase via a vehicle loan, the earlier loan was via SBI Bank. I had given the cheques with the exact amount details.

Update on 22nd October! Moral of the story, do NOT give blank cheques to anyone:

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.

[Axe77]

This is taking a high handed approach I think he should walk away from the bank. No questions. Usually when PDCs are taken either you put the EMI amount or a single cheque that says amount not exceeding [xyz].


Urgently talk to another bank and get an alternate loan approval and walk away from these guys.

[ABHI_1512]

This absurd practise is followed only by public sector banks. No way one should issue blank cheques, no matter how secure one would like us to believe. In this day and age, when every financial transaction in regards to loans is linked to proper CIBIL score and that banks already have the details pertaining to the account, this practise practically makes no sense at all. Post dated cheques should have the amount filled and crossed properly, blank cheques are a strict no.

Many public sector banks have this thing of withholding the spare key as some sort of collateral but I have hardly come across NBFC’s like Bajaj Finance or Reliance or for that matter private banks doing the same. Public sector banks are still stuck in some warped notion regarding loans and that is why, lenders like HDFC are in the top spot in disbursing loans despite of their strict compliance structure.

[lapis_lazuli]

Actually it is not illegal, even though it might sound counter-intuitive. There are many court judgements. What they will do is, in case of repeated default they will fill the cheque for the entire balance amount and submit, which upon bouncing it becomes a criminal case, as per NI act modifications and not a civil economic case which makes case strong for bank. It is indeed called a security cheque and even private banks like AXIS do it.

[riteshritesh]

If I remember correctly, this was a standard practice across all Banks. I remember giving blank cheques for auto loans.

[Ramon]

Originally Posted by ABHI_1512

This absurd practise is followed only by public sector banks.................

........... Public sector banks are still stuck in some warped notion regarding loans and that is why, lenders like HDFC are in the top spot in disbursing loans despite of their strict compliance structure.

Federal Bank is a Private Sector Bank


I would advise the OP to meet the Branch Manager or Loan Section Officer of the branch where the loan is being availed. Usually they will be having a check list of all documents to be submitted while availing each loan. If cheques are there on the list, then no issues. They may be asking for blank cheques to fill the outstanding amount in case of any default in loan. As for the date part, a cheque would become stale 3 months from the date on it, so having a cheque with the date of loan disbursal on it for a loan with a tenure of 5-7 years is not going to be of any use to the bank. But it would be better to give crossed cheques favouring the Bank and also to obtain an acknowledgement to the effect that they have the cheques with them.

[binand]

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.

[Guna]

Originally Posted by riteshritesh

If I remember correctly, this was a standard practice across all Banks. I remember giving blank cheques for auto loans.

That is not true. They collect signed cheques with the amount equivalent of an EMI as security, not blank cheques. Probably if the person is having low CIBIL score and is desperate to raise a loan, they would take the advantage.

[avira_tk]

Originally Posted by lapis_lazuli

Actually it is not illegal, even though it might sound counter-intuitive. There are many court judgements. What they will do is, in case of repeated default they will fill the cheque for the entire balance amount and submit, which upon bouncing it becomes a criminal case, as per NI act modifications and not a civil economic case which makes case strong for bank. It is indeed called a security cheque and even private banks like AXIS do it.

That will work only if there is money in the account, there is already ecs mandate in place. I'm not sure if the person doesn't have an account with Federal in any other capacity. The case doesn't sound very strong, who defaults on multiple installments and writes a cheque for the whole amount? I'm sure there is some banking regulation that allows this.

[Garth]

This is strange. The usual practice as far as I know is they will ask 3 or 6 PDCs with the EMI amount. These cheques are undated. In case of a default, they start presenting these cheques, and as few people mentioned, when the cheques bounce, it is a criminal offence.

But signing blank cheques to whosoever is a risky proposition in my opinion.

[ABHI_1512]

Originally Posted by Ramon

Federal Bank is a Private Sector Bank

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.

Originally Posted by Guna

That is not true. They collect signed cheques with the amount equivalent of an EMI as security, not blank cheques. Probably if the person is having low CIBIL score and is desperate to raise a loan, they would take the advantage.

Absolutely, only when your CIBIL score is low, the banks try to squeeze the customer and take advantage of the situation. Typically, when banks tweak their original conditions and someone desperately needing loans are subjected to some more security or collateral, these blank cheques are asked for.

Customers are well within their rights to refuse giving blank cheques and only issue cheques with amounts filled and crossed properly.

[commonman]

Would like to share my experience. Hope this will be of use .
Whenever I had taken auto loans, banks (SBI / ICICI /PNB) had taken blank cheque leaves from me. The reason they had given was they do not have any other collateral. The only thing they can do if the customer defaults, is taking possession of the car, which is not easy practically and if at all it happens, the resale amount may not suffice for the entire balance amount.
However, even when I had closed my loan accounts in all these banks, I had not got my cheques in return. Banks say they destroy the cheque leaves.In all my 20 year experience banks, had not charged me through the cheques. I had defaulted in the past, but they never used the cheques.They had called me or mailed me to clear the balance amount.
So, the cheque leaves are used in banking system to keep the customer alert, so that the EMI default do not happen.

[Repsol]

I think this is normal. When I took car loan from SBI in 2017, I had to give 6 blank cheques as security. When I foreclosed the loan in 2019, all the 6 cheques were duly returned to me.

[blackwasp]

Originally Posted by GTO

Vijay asks the following question via this Team-BHP page! What to do? My advice = no way would I give a blank cheque to anyone! Would instead proceed with another, more ethical lender.

I have asked to speak to the Branch Manager in charge. Any suggestions or pointers from the esteemed members is much appreciated. I hope I am not over thinking this situation.

Issue them the cheques. Immediately, go to your bank and issue stop payment notice to these. I'm assuming you will issue the cheques from an account in a different bank. Online banking (net banking) of most banks will have a stop cheque option right there itself. For smaller banks you might have to go to the branch and issue them a letter.

I did this for 2 of my car loans. In the 3rd loan, they asked me to prefill EMI amount and just leave the date blank, so didn't need to block it.

[rohan_iitr]

The same thing happened to me when I took a car loan from a Public Sector Bank.

The loan officer initially did not convey the requirement of blank cheques, but during the loan disbursement at the RACPC branch, the bank officer demanded 3 blank cheques.

I gave them a piece of my mind, but still went ahead with the loan by submitting the blank cheques because I did not want to miss the year end discounts and spoil my mood while taking the car delivery.

After the car was delivered, I threatened the bank staff against such practices and demanded that my blank cheques must be returned to me, otherwise I will approach the Banking Ombudsman. They returned the cheques immediately.

Rohan