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Heavy handling—UAE’s new lending rules pit banks against dealers
Even the most well-intentioned regulation can still have its drawback. When it comes to the new loan regulations, Precious de Leon thinks it’s time for a rethink.
August 21, 2011 3:35 by Precious de Leon
Last week, Kipp was in an interesting conversation with an acquaintance who works in the banking sector. Over an Iftar spread, he said that while the Central Bank’s intentions are in the right place when it came to implementing the new lending regulations, it isn’t doing as much good now as it would have done three years ago when everything was just about to blow over.
Kipp recalled this conversation when we read an article in The National about ADCB planning to blacklist car dealers that try to find their way around the Central Bank’s new loan rules.
While the centre of our banker-friend’s argument is rooted on the fact that the new regulations are hindering the much-needed circulation of money through loan interest and profits, Kipp is reminded of this conversation mostly for two things: (1) the lack of financial awareness and education in the community and (2) that, the although the regulations have been put in place to protect consumers, in some cases, it has unintentionally aided in getting consumers even deeper in debt.
It seems like there’s a growing number of car buyers who are either opting to avail of a personal loan or maxing out their credit cards to pay for the newly-implemented 20 percent down payment to purchase a vehicle. Add this down payment/credit to that the car loan to actually buy the car and you’ve got an extremely lethal financial combination.
This deepening hole of debt is one of the reasons, Al Futtaim Motors, says it has come up with their ‘innovative’ payment schemes. The car dealer staunchly defends its payment scheme that enables customers to buy the car without the newly mandatory 20 percent down payment, allowing them instead to pay in 24-month installments.
According to the article, Al Futtaim Motors sees this scheme as a way to prevent buyers from incurring further debt.
Anyway, Kipp is sure that the Central Bank would have spoken to the local and regional banks, financial services, brand owners and retailers about the new regulations before it was implemented, of course. And that’s way why everyone is in agreement that it is the best way forward, right? Right?
In our humble opinion, while we agree that the companies need to follow the Central Bank’s guidelines, we wonder what the Central Bank will do to banks that continue to irresponsibly give out personal loans. We also wonder if there will be any action towards getting people to understand that two wrongs (in this case getting multiple loans for a set of wheels) can’t possibly be right.