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Is your bank bullying you?
Kipp takes a closer look at the arm-twisting tactics banks favor and we ask is it high time for change in defaulting policies?
June 25, 2012 5:02 by kippreport
It is difficult to reconcile the relationships banks enjoy with credit here in the UAE. Why narrow in on the Emirates, you ask? After all, the global economic meltdown helped to cast a much needed light on the somewhat reckless lending habits of banks around the world. But what sets the UAE apart from the rest, is the country’s drastic legal framework set in place to protect banks from defaulters.
For instance, if you miss a payment for a personal loan, the bank can demand a payment of the entire amount lent in addition to accrued interest and late payment fees. Banks also require loan recipients to submit a ‘security cheque’ as collateral. In the event of a late payment, the bank can chose to cash in this security cheque. When this security cheque bounces you are in hot water.
As per Article 401 submitting a bounced cheque is punishable by a stint in jail lasting anywhere from a month to three years—in addition to a fine. After serving the period, the amount due has to be paid in full—failure to do so could result in more time in jail.
If harsh and outdated are the words coming into your mind, you are not alone. Professionals and experts in the field have called for a rethinking of the current system and repercussions for some time now. After all, shouldn’t the bank also be responsible for a thorough background check to assess the financial stability of the recipient of a loan? Currently the only requirement for getting a loan is a salary of Dh 8,000 and a residence visa. Rather lax criteria considering customers can get loans up to and exceeding 20 times their monthly salary. How exactly does this qualify as evaluating risks?
Or what about current policies in place concerning final salary payments? As per the current regulations a bank can freeze your account if you lose your job. Tough luck, huh? After your last salary is paid to your account, the bank has the right to freeze your account and your credit card. If you have an outstanding amount due for a personal loan, the bank also has the right to take an amount out of your current account and place it in a temporary holding account.
So, here is the question do you think UAE banks are given too much power? Surely one should exercise caution and responsibility when applying for a loan; but is the threat of a jail sentence allowing banks to abuse the system? Kipp wants to know your thoughts on the matter. Have you or anyone you know ever been a victim of such abuse? What do you think needs to change in order to have a better regulated banking system?