Circular No. 162 - Reformulation of the Discipline Established by Circular 58 Regarding the Effects of Issuing Checks Without Sufficient Funds

CIRCULAR NO. 000162

To
Banking Establishments, Savings Banks, and Credit Cooperatives

We communicate to you that the Board of Directors of this Central Bank, in a session held on this date, resolved to issue the following norms, regarding the opening, closing, and reopening of freely movable deposit accounts by means of checks:

I - For the opening of a freely movable deposit account by means of a check, it is mandatory to complete an application form in which the following are recorded:

a) full name and qualification of the depositor;

b) reference sources;

c) agreed conditions of the deposit;

d) warning that the account will be closed in case of improper use of checks by the depositor;

e) signature of the depositor;

f) date of account opening and its respective number;

g) order from the administrator authorizing the opening of the account.

In accordance with the convenience of each Bank, nothing prevents the purpose of the application forms from being expanded, so that they may also be used as autograph cards.

II - The application forms, filed in alphabetical order in the premises where the accounts are maintained, shall constitute the Register of Depositors, integrated:

a) by the application forms of new accounts - mandatorily, from the date of validity of this Circular;

b) by the application forms of previously opened accounts - mandatorily, from the date of return, for any reason, of a check drawn by their respective holders;

c) by the application forms of old accounts, of normal activity - gradually, at the discretion of the financial institutions, or when updating autographs is necessary.

III - Autographs must be endorsed by a natural or legal person considered reputable by the financial institution, admitting, in the impossibility of endorsement, the verification of the signature by comparison with that of a valid identification document.

IV - The provision of the first checkbook for the movement of a new account may only be made after the financial institution has certified the reputation of the depositor, having consulted reference sources and confirmed the veracity of the information contained in the application form. If necessary, before that, the account will be operated by loose, nominative checks in favor of the issuer itself.

V - The opening or maintenance of a freely movable deposit account by means of a check is prohibited:

a) in the name of persons or firms listed in item XVI, during the period of validity of the impediment, including in the name of third parties when acting as representative or proxy;

b) in the name of minor children of the impeded persons, during the period of validity of the impediment;

c) jointly, in which one of the holders is impeded, under the same previous conditions;

d) in the name of a depositor considered untrustworthy or who has provided false information in the application form;

e) in the name of sole proprietorships whose holders are impeded;

f) in the name of natural persons, holders of sole proprietorships, while these are impeded;

g) with the abbreviated name of the depositor, unless titled by a sole proprietorship duly registered with the competent authority.

VI - Improper use of checks is characterized:

a) by the second presentation of a check, made after a minimum of two business days from the first presentation, without the respective account having been supplied with sufficient funds;

b) at the discretion of the drawee institution and the Central Bank of Brazil, when it is found that the depositor has the habit of issuing checks without the necessary provision of funds, although liquidated upon the second presentation, and when cases of check kiting or other occurrences that evidence condemnable practices by the issuer are verified.

VII - When refusing payment of a check, the drawee establishment:

a) will register on the back of the check, in a dated declaration signed by an authorized employee, (1) time of presentation, (2) reason for return, and (3) the existence or not of sufficient funds;

b) will note the occurrence on the back of the issuer's application form (Register of Depositors), if the check was returned due to lack of sufficient funds;

c) will fill out in a single copy the form referred to in § 2 of art. 7 of the Regulation of the Check and Other Papers Clearing Service, adding, when appropriate, the declaration "ACCOUNT CLOSED".

VIII - Whether the returned check circulates or does not circulate through the Check and Other Papers Clearing Service, each branch will keep in its possession, for a period of six months, the single copies of the form referred to in item VII, letter "c", grouping them in chronological order, day by day, each group headed by the form (COMPE-2-Final Summary) or by a copy of the accounting entry referring to the returns of the day.

IX - In places where there is no Check Clearing Service, the discipline established in this Circular applies to cases of check restitution due to insufficient funds, insofar as applicable.

X - The returns of checks to the Check and Other Papers Clearing Service are subject to the payment of a service fee equivalent to 3% of the highest minimum wage in effect in the Country, rounded up, fraction of cruzeiro, per returned check, under the following conditions:

a) at the expense of the drawee establishment and transferable to the issuer, when the return results from:

• lack of funds;

• discrepancy or insufficiency in the signature;

• written counter-order from the issuer;

b) at the expense of the presenting establishment and non-transferable to third parties, when the check is returned due to:

• absence or irregularity of endorsement;

• formal irregularity or error in filling out;

• improper clearing.

XI - The fee referred to in item X will be charged at the time of return, by the Executor, by debit to the account of the responsible establishment, and will revert to the benefit of the Check and Other Papers Clearing Service.

XII - The deposit account of the issuer of a check without sufficient provision of funds will be closed whenever the second presentation occurs under the conditions provided in item VI, letter "a".

XIII - To effectuate the closure of the account, the financial institution:

a) will transfer the balance, within the same accounting title, to the impersonal subtitle "Accounts Closed according to Circular No. 162, of 26.8.71", which may receive withdrawals for liquidation of the transferred balances;

b) will send notice to the holder, requesting the withdrawal of the balance available and, if applicable, the return of unused checks;

c) will note the occurrence on the issuer's application form - Register of Depositors;

d) will include the name of the account holder in the list referred to in item XV.

XIV - When closing a joint account, only the name of the holder who issued the checks without funds will be included in the list referred to in item XV, indicating the type of closed account.

XV - The financial institution that takes the initiative to close a deposit account due to improper use of checks by its holder, will inform the Check and Other Papers Clearing Service, by sending a monthly list, in two copies (one of which destined for the Central Bank of Brazil), of the depositors concerned, with identifying data of their respective holders, namely: full name, address, identity document, and parentage.

XVI - The Check and Other Papers Clearing Service will prepare monthly, through an agreement with participants, a list of closed accounts and send a copy:

a) to each banking establishment in the place or region;

b) to the Central Bank of Brazil, accompanied by copies of the lists referred to in item XV.

XVII - The Central Bank of Brazil may recommend to the Check and Other Papers Clearing Service the inclusion, in the lists of closed accounts, or in special lists, of the names of habitual issuers of checks without funds, even if (1) with only one return in each of several financial institutions or (2) due to check kiting or similar practice. The suspension of the impediment in the cases provided for in this item depends on express determination by the Central Bank of Brazil.

XVIII - Upon receipt of the lists referred to in items XVI and XVII, financial institutions will immediately close the accounts of their depositors cited therein, adopting the measures indicated in letters "a", "b", and "c" of item XIII. The measure determined in letter "d" of the same item XIII competes exclusively to the financial institution that takes the initiative of the closure.

XIX - An account opened for the credit of salaries, pensions, or allowances will not be closed in the event that its holder makes improper use of checks. However, he will be subject to the other restrictions provided for in these Norms, and the movement of the account will be admitted exclusively by means of loose, nominative checks in favor of the holder himself, or against receipt.

XX - For the opening of accounts intended for credits of salaries, pensions, or allowances of public servants or employees of private companies, the financial institution may request from the interested entity, regarding each beneficiary, the elements referred to in letters "a" and "b" of item I of these Norms, as well as the endorsement of the autographs of the proposed current account holders.

XXI - After a period of 6 (six) months from the date of publication of the lists referred to in item XVI, accounts may be opened or reopened in the name of the person or firm until then impeded, provided that, at the discretion and under the responsibility of the depository financial institution, the regularization of the occurrence that characterized the improper use of checks by the holder is proven.

XXII - The impediment may cease before the period of 6 (six) months, referred to in the previous item:

a) in case of inclusion in the list referred to in item XVI due to error by the drawee financial institution;

b) by error of the issuer, provided that he proves the existence in another banking branch in the place, on the same date of issuance of the check causing the closure of the account, of sufficient funds for its coverage;

c) in other cases decided favorably by the Central Bank of Brazil, on appeal.

When the hypothesis of items XXI and XXII is verified, the financial institution that took the initiative of the closure of the account will request from the Check and Other Papers Clearing Service the exclusion of the depositor's name from the list of impeded persons, a measure that it will adopt when issuing the list corresponding to the immediately following period, through the payment of a service fee by the interested establishment, which may recover from the depositor if the exclusion proceeds due to approval of his request.

The account will only be reopened after the exclusion has been published by the Check and Other Papers Clearing Service or according to the decision of the Central Bank of Brazil in cases of appeal.

XXIII - The opening, maintenance, or reopening of a freely movable deposit account by means of checks with non-compliance with any of these norms will be considered an offense subject to the penalty provided for in art. 44, § 2, letter "b", of Law No. 4.595, of 31.12.64.

XXIV - This Circular will enter into force on November 5, 1971, thereby revoking Circular No. 58, of 14.11.66, and Instruction Letter ISBAN No. 1, of 11.7.67. Pending cases of checks without funds, occurred during the validity of Circular No. 58, of 14.11.66, will not be counted for account closure under the terms of this Circular, but must serve as subsidies for assessing the reputation of depositors, in the case provided for in item IV.

Brasília-DF, August 26, 1971

Luiz de Carvalho e Mello Filho
Director