I have been hesitating to weigh in on the Mpombo – Findlay cheque bouncing saga. In the end I found it hard to resist because yet again the deeper problem appears to have escaped general debate : we are a people addicted to poor laws often to our detriment. We have laws for everything, that only politicians and misguided bureaucrats understand the rationale behind them. The latest to come to the forefront is the criminalisation of cheque bouncers. Caleb Fundanga neatly reminded us of the danger :
”The total volume of cheques returned unpaid on account of insufficiently funded accounts fell by 8% to 5,117 cheques while the value decreased by 28% to K41.30 billion. This is an encouraging trend, which the Bank would like to see continue. The public is reminded that bouncing of cheques is a criminal offence under the National Payment System Act. Members of public should ensure that they have sufficiently funded accounts whenever they issue cheques to avoid facing criminal charges”.Section 33 (1) of National Payments System Act 2007 states:
Any person who wilfully, dishonestly or with intent to defraud issues a cheque on an insufficiently funded account or causes to be issued a cheque to be drawn on that account and which cheque when it is presented for payment is dishonoured, commits an offence and is liable on conviction to a fine not exceeding one hundred thousand penalty units or to imprisonment for a term not exceeding two years, or to both.It’s difficult to fathom how and why such a draconian law is on our statute books without minimal general opposition. To think it was drafted as recent as 2007! Do these MPs read before they sign things into law? I can see why any normal human being would consider it wrong for people to systematically and intentionally bounce cheques, but I don’t see why that should translate in a criminal penalty. In my view criminal penalties are there for offenses seen as injurious to the general population or to the State, including some that cause serious loss or damage to individuals. This is why they often result in custodial sentences. Bouncing a cheque is not in my view a crime against the state, nor are there serious economic foundations for treating it as a social problem, let alone a criminal or custodial offence. I reach this conclusion based on three reasons.
First, the social negatives (or “market failures”) are not obvious. On efficiency grounds alone, government intervention is warranted if bouncing a cheque in some way imposes costs on society that are not borne by the players involved in the transaction. It follows that if X issues Y a cheque dishonestly, and Y bears the costs (bank charges, lost income, etc), there’s no need for government to intervene. That Y has been duped by X is no crime against other members of society (represented by government), unless we believe there was systematic failures that prevented Y from properly taking the possibility of being duped into account when agreeing the deal with X. That is to say we regard the exchange between X and Y as sub-optimal. For example, we might hold that Y is insane and not capable of asking for the payment to be delivered in cash. But as long as Y made a perfectly rational and informed decision, the fact that it turned out to be wrong is no reason for government to intervene. In many cases cheques are accepted on trust, but where such trust does not exist people prefer more certain transactions, and so it should be! There's a good reason why supermarkets don't take a cheque without a cheque guarantee card! It is not government’s job to constantly police that Y gets the correct cheques from X. The point of course is that whether Y’s judgement is poor or not is irrelevant, what matters is that this is a deal between two private and rational individuals and therefore all the costs borne by either side are “internalised”.
Some might say, well that sounds fine but what about cost on the courts if Y had to be forced to pursue X to recover the debt? Surely, by having this draconian law we are ensuring such eventualities never take place – a sort of deterrent effect? That is true, but we have to remember that this is different point for a number of reasons. For one thing, the underlying questions raised is predicated on 100% deterrence. As Fundanga helpfully illustrates, we have many cases of these breaches. So in most cases what we have is more costs on the system with minimal deterrence. Indeed under the current minimal deterrence Y can always sue X with or without the criminal prosecution. So having the criminal sanction does not prevent the ensuing criminal justice costs. The more crucial point is that the question rightly focuses on the importance of the deterrent effect in reducing the costs on the justice system (e.g. court congestion from subsequent debt pursuits etc). If these are worthy goals then its better to take a more holistic approach to easing capacity constraints and not use specific laws as the way to achieve that. A piece meal approach is actually likely to have the opposite effect – far from easing criminal justice constraints we may add on top strain to our police officers as they chase Mr X rather than fighting real crime.
This brings us to the second objection: criminalisation of cheque bouncers has significant costs on society. Criminalisation is not without costs. I have already noted that there are likely to be significant costs to our justice system in form of costs to the police, possible legal aid provision for defendants, courts and other aspects. The worrying prospect of course is the potential for two year imprisonment and the likely costs that would have on prison population. But it is the costs to society for someone having gone through the criminal fraternity that we should worry about. It is well know that often jail is simply a training ground for later re-offending. It therefore begs the question why any responsible person would even contemplate sending people to jail in the first place for bouncing a cheque.
Efficiency issues aside, the measure is also misguided on equity grounds. It is hard to dismiss that the poorest members of society are the ones who tend to issue bounced cheques. It is they that often struggle financially as they fend for themselves. The poor also suffer because they have weak legal representation. As we will discuss more in future posts on “Rethinking Justice”, legal aid provision is insufficiently funded by government (and NGOs) and many of our poorest do not get high quality legal presentation, if at all. There’s significant likelihood that many innocent poor people are being sent to our crowded jails based on foolish laws and crimes they have not committed. This is a triple injustice : poor, foolish laws and incorrectly convicted.
The time has come for those who are proposing new laws to start thinking carefully about the various trade-offs involved. Not every small issue requires a criminal offence. Poorly thought out laws without any analytical basis can only cripple our capacity constrained justice system. And for goodness sake don't just implement laws because you have seen a similar law in India*! Think! We’ll return to these issues in due course.
*That I use India has nothing to do with my frustration that the recent visit by Indian VP piled more debt on our necks. It is purely because India has a similar law.