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Decriminalizing the issuance of bad checks in Turkey: an analysis of the effects of changes in penalties

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Abstract

The aim of this study is to carry out an economic analysis of the consequences that arose following the decriminalization of the issuance of bad checks in Turkey. In our statistical analysis we examined the legal situation of bouncing checks in three periods: before 2009 when the issuance of bad checks was subject to imprisonment, between 2009 and 2012 when a partial decriminalization took place and between 2012 and 2014 when the issuance of bouncing checks was fully decriminalized and penalties were reduced to only administrative fines. We test the hypotheses that partial or full decriminalization led to a rise in the number of bad checks in Turkey. We find that there is no statistical evidence for an association between the first, modest step of the decriminalization process (Law No. 5941) and the frequency with which checks bounced in Turkey. However, full decriminalization of bouncing checks (Law No. 6273) led to an increase in the frequency of bad checks. We also find that the establishment of a Risk Center by the Bank Association of Turkey helped to identify customers not worthy of credit and was successful in decreasing the frequency of bad checks. We conclude that in the case of Turkish check law imprisonment was more effective in deterring writers of bad checks than the administrative and civil sanctions that are now in place. Nonetheless, private credit screening efforts also promoted the targeted policy goal of limiting the number of bad checks in Turkey.

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Notes

  1. A number of newspaper articles were written on this issue. See for example (Kızılot 2011, Armutçu 2011). Numerous criminalized debtors also founded awareness raising groups. These groups called themselves “Check Law Victims” and created websites and blogs to raise public awareness of their plight. See for example (Karşılıksız çek mağdurları 2009).

  2. Law No. 4709 on the Amendment of Certain Articles of Constitution OG 24556 dated 17.10.2001, Article 15 amending Article 38 of the Constitution. Although a check is not a contract, but a means of payment, it must still be noted that both Additional Protocol 4 of the European Convention on Human Rights of the Council of Europe and Article 38 of the Turkish Constitution played an important role in the passing of the new legislation.

  3. See the Minutes of the Turkish Grand National Assembly for the 21st Legislative Term—3rd. Legislative Year, 133rd, session on 26.09.2001 pp. 22; 27–28. These discussions took place during a period in which many banks went bankrupt due to fraudulent operations and consequently needed to be bailed out by the State Treasury (Demir 2013).

  4. Law No. 6102 on Turkish Commercial Code (TCC) OG 27846 dated 14.02.2011 with the amending Laws No. 6103 OG 27846 dated 14.02.2011 and No. 6335 OG 28339 dated 30.06.2012.

  5. Law No. 3167 stated that the situation where the check shall be regarded as bounced includes that where the check is submitted to the bank before the drawing date written on the check. Consider the following example: Trader A gives Trader B a postdated check. Contrary to their prior informal arrangement Trader B submits this check to the bank before the date specified on the check. However, the bank account of Traders A does not have sufficient amounts to cover the check. Under Law No. 3167 this check then has to be regarded as a bounced check leading to all the negative consequence for the issuer described above.

  6. Law No. 3167 on Regulation of Check Payments and Protection of Check Holders OG 18714 dated 03.04.1985.

  7. Fist amendment to Law No. 3167 is Law No. 3863 OG 21477 dated 26.01.1993, the second amendment is Law No. 4814 OG 25042 dated 08.03.2003.

  8. Law No. 6762 on Turkish Commercial Code OG 9353 dated 09.07.1956.

  9. When the use of checks increased in the Turkish economy, also the challenges in dealing with the wrongful practices according to the Turkish Commercial Code became more frequent. It was consequently argued that more comprehensive legislation was required. However, it is controversial whether more detailed legislation is in all instances beneficial (Tullock 1995).

  10. The start of the complaint period was a discussion. There is a Court of Cassation decision ruling the decision of the district court void as the decision was given without examining whether the offender did receive a warning letter from the bank where he or she was not asked whether he or she wanted to use the correction right or not. See (Sarıduman 1988). The start of the complaint period was later in 1993 clearly regulated in the amendment to Law No. 3167 with the Law No. 3863.

  11. The Draft Check Law and its justification as submitted to the Parliament No. B.02.0.KKG.010/101-418/2070 dated 15.04.2002 available at http://www2.tbmm.gov.tr/d21/1/1-0970.pdf.

  12. The Draft Check Law and its justification as submitted to the Parliament No. B.02.0.KKG.010/101-389 dated 20.01.2003 available at http://www2.tbmm.gov.tr/d22/1/1-0433.pdf.

  13. Roughly 47.000€ based on the 2003 average exchange rate of the Central Bank of Turkey.

  14. Draft Check Law and its justification as submitted to the Parliament No. B.02.0.KKG.010/101-1690/2010 dated 08.05.2009 available at http://www2.tbmm.gov.tr/d23/1/1-0710.pdf.

  15. Law No. 5941 on Checks OG 27438 dated 20.12.2009.

  16. Roughly 277€ based on the 2009 average exchange rate of the Central Bank of Turkey.

  17. The Draft Check Law and its justification as submitted to the Parliament No: B.02.0.KKG.010/101-429/50 dated 05.01.2012 available at http://www2.tbmm.gov.tr/d24/1/1-0538.pdf. In a study on the Italian criminal justice system it was shown that the willingness to commit crimes is particularly sensitive to trial duration. The deterring effect of punishment decreases the longer the expected time required to complete the judicial proceeding. See (Pellegrina 2008).

  18. Roughly 432€ based on the 2012 average exchange rate of the Central Bank of Turkey. This amount is adjusted each year according to inflation figures. Lately, on 21.01.2015 it was increased to TL 1120.

  19. Roughly 260€ based on the 2012 average exchange rate of the Central Bank of Turkey.

  20. Since we worked with time series data we tested the dependent variable and all explanatory variables (except the dummy variables) for unit roots. All variables were stationary, except Adjusted GDP. However, this does not cause a problem for our model. Adjusted GDP is the only non-stationary variable and it is only included in our model as a control variable. Excluding Adjusted GDP from our models does not affect the stability of our results. We decided to use level values rather than first differences to ease the interpretation of the model.

  21. After the amendment in 2003 fine was given for the first offense and imprisonment was given if the offense was repeated.

  22. For a treatment of the question whether economic factors affect criminality see (Laspa 2015).

  23. In current USD, from USD 67,2 billion in 1985 to USD 789,3 billion in 2012 according to World Bank data available at http://data.worldbank.org/indicator/NY.GDP.MKTP.CD?page=5.

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Acknowledgments

We very much thank Prof. Dr. Hans-Bernd Schäfer, Mr. Fuat Emin, Prof. Dr. Karl Riesenhuber and two anonymous reviewers for valuable comments and suggestions. All errors are the authors’ responsibility.

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The authors declare that they have no conflict of interest.

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Authors and Affiliations

  1. Institute of Law and Economics, University of Hamburg, Hamburg, Germany

    Basak Babaoglu & Alexander J. Wulf

  2. SRH Hochschule Berlin, Ernst-Reuter-Platz 10, 10587, Berlin, Germany

    Alexander J. Wulf

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  1. Basak Babaoglu
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  2. Alexander J. Wulf
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Correspondence to Alexander J. Wulf.

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Babaoglu, B., Wulf, A.J. Decriminalizing the issuance of bad checks in Turkey: an analysis of the effects of changes in penalties. Eur J Law Econ 42, 5–23 (2016). https://doi.org/10.1007/s10657-015-9502-3

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