On Overdrafts

Written by Phil Heinlein

Despite all that talk of "Europe" and "harmonisation" to move from one EU country to another is to be confronted sometimes with surprising differences within the same area of activity. Take banking. My British friends, for example, are surprised to find that in France they can't postdate a cheque - whatever date it carries it will be debited immediately; also, it's virtually impossible to stop a cheque - "faire opposition" is the French term - except in cases where you can prove it's been lost or stolen (so if you simply regret buying something you can't cancel the payment).

Stricter than in the UK or US

In general retail banking practices in France are stricter than in the UK or US, certainly before the subprime crisis broke upon us. I've had two French mortgages and my resources were checked out pretty thoroughly before they were approved. All that's certainly to the good I'd say, both of banks and their clients (foreclosures are rare here). Joe Laredo, in a book reviewed in our next issue, tells us that French bank managers are "generally personable and approachable"; I've no reason to argue with that but they are subject to strict supervision from higher management and their range of options when dealing with clients is limited. Your chef d'agence is concerned to watch his back and will apply the rules strictly. Overdrafts - d�couverts - are a case in point. First of all, there's an "unauthorised" overdraft when, through inadvertence (let's say), you write cheques or otherwise use your account when it does not contain sufficient funds and you have no arrangement - like a revolving credit, for example - to cover such a situation. Foreigners are often surprised by the sharp reaction of their bank, even if the sum involved is very small. This will partly depend on your record with the bank and your relationship with the manager. But whatever the circumstances it's wise to regularise the situation as soon as possible. For one thing, the charges (agios) applied can be steep although legislation is now coming into force to place strict limits on these; for another, if you don't do the necessary you could be subject to the dreaded "interdiction bancaire" (bank banishment) - whereby your chequebook and debit card are withdrawn and you can end up in a Bank of France file of miscreants. And that's fatal to your credit rating (not to mention a lengthy process to rectify the situation with the Bank of France).

Get permission first

If you think your finances make it necessary, you need to go for an agreed overdraft (d�couvert n�goci� or facilit� de caisse). This is discussed with your bank and is hedged around with conditions relating to rate of interest and to what extent you need to be at some times in credit (this may be as little as one day a month). But be careful. If you can't manage your overdraft successfully you could soon be in trouble. Moira in the Var (not her real name) got an overdraft to cover her running costs when she started a very modest business. Her income from trading fell rather short of what she'd expected and she was soon faced with escalating charges and the threat of penalties. Maybe to start with her bank manager was "personable and approachable" but, as Moira put it, "as soon as I was in trouble he only seemed to care about the bank's interests." Well, that's what he's paid for, actually. Anyway, the lesson's clear: just don't mess with an overdraft.