Home East africa economy What banks look at when settling bad debt in the UAE

What banks look at when settling bad debt in the UAE

2
0

Gulf Law lawyer Barney Almazar with Andrea, who was finally able to settle his Dh 1.7 million credit card debt with his bank, which has exploded in a decade.
Image Credit: Virendra Saklani Archives / Gulf News

Dubai: Debtors are morally and legally obligated to pay their dues to banks and financial institutions, while settlement or consolidation is only the last resort if they are going through a difficult time, advocates said.

The recall comes following hundreds of inquiries from UAE residents after Gulf News published an article about how Dubai resident “Andrea” was able to settle two 1.7 credit card debts million Dh with 15,100 Dh in June.

The resident had lost her job 10 years ago and could not repay her debt. She eventually failed and went into hiding for a decade.

Attorney for Gulf Law director Barney Almazar, who worked with Andrea to reach a settlement with the bank, said his office received similar debt settlement requests after the story came out. He said, however, that while Andrea’s case is extraordinary, it won’t be the norm.

“[Andrea’s settlement] is truly a special case and we don’t expect this amount of tolerance to become a precedent, ”Almazar told Gulf News.

Almazar and his team have dealt with many clients with outstanding debts from banks over the years.

The most common vary between bank loans such as personal or salary loans, auto loans, and credit cards, and sometimes both. The amount borrowed and the length of the default also differ from case to case.

Almazar, however, refuted comments from some residents that they “would borrow money and just settle with the banks” later.

“We cannot name the banks for confidentiality reasons, although what I would like to stress is that borrowers must honor their obligation to pay what they have borrowed. We should not have the mentality of borrowing and then resorting to “settlement” with the intention of cheating the bank. It would be an abuse of the system, ”Almazar said.

There is hope

In cases where residents have to skip payments due to financial hardship due to job loss or an emergency, even when police lawsuits have been filed against them, there is still hope, Almazar said.

Residents only need to contact their bank directly so that both parties can agree on a repayment plan.

“In most settlements, the borrower repays the principal amount to the bank with interest, penalties and surcharges waived,” he said.

“Banking operations are highly regulated by the government. The waiver of debts is the last resort, so defaulters must demonstrate good faith in their settlement. Banks are very unlikely to refuse settlements until there is bad faith on the part of the debtor. Ultimately, banks prefer to have a healthy balance sheet and debtors to have good creditworthiness. “

“I have not encountered a situation where the bank has refused any form of payment. Even those who have existing cases, the banks will always settle. “

There were circumstances, however, where the negotiation hit a roadblock. This can happen when a bank will not accept the debtor’s offer and the debtor is unable to accept the bank’s offer.

“In such cases, we examine the reasonableness of the offer and aim to balance the commercial interests of the bank with the civil rights of the borrowers. The Central Bank plays a very important role in bringing the parties back to the negotiating table. The Central Bank has a mechanism through which debtors can seek help from regulators to arbitrate. It’s a much more informal process and a practical approach than going to court, ”Almazar said.

Not a strategy for everyone

Gaurav Bhalla, founder and CEO of Dubai-based Lotus Loans and Overdues Rescheduling Services, which has served more than 2,700 clients in the United Arab Emirates, said there was no “one strategy for all” when it comes to debt settlement or consolidation because each case is unique.

“After analyzing the case, we are exploring options such as one-off settlements, long-term payment plans based on our customers’ repayment capacity and subject to the rules and regulations of lending institutions,” Bhalla told Gulf News.

“The main objective is to set up repayment plans in order to allow our clients to free themselves from their debts given the debt ratio as prescribed by the Central Bank of the United Arab Emirates. “

Bhalla said that debt consolidation depends on banks’ credit policies, which are becoming stringent given current market conditions.

But one of the most important cases they dealt with was that of the liabilities of 22 financial institutions in 2017 with a global exposure of 560 million Dh. He said they were able to secure a settlement plan with a DH 35 million down payment after a year of trading.

“Banks are extremely supportive of understanding the financial hardships of customers who experience financial hardship, especially if the root cause of the default is due to loss of employment, reduced income, unforeseen medical expenses resulting in reduced repayment capacity, ”Bhalla said. .

“Residents who are experiencing financial difficulties should come forward and discuss their financial affairs openly… debt should not be viewed as a social stigma. Friends and family must be informed about the financial crisis in order to find a solution, ”he added.

Almazar said that during his years of practice in the UAE, even the most “impossible” cases are resolved.

“As long as there is an intention to pay, the banks will work with the defaulters. It is for the borrower to lay all the cards in hand and be honest. Banks don’t earn anything if their customers go to jail. With the right approach, the right documentation and knowledge of the law, a good faith settlement is always on the table. The common denominator I have observed with banks is that they will welcome good faith settlements. Banks are not there to put people behind bars, ”Almazar said.

Factors taken into account for debt settlement:

Ability to pay is always the primary consideration. However, banks will also take into consideration the changes in the borrower’s personal circumstances since the time they made the loan and their current financial situation. Banks will have more leeway if you have a good payment history. You can even request a suspension of payments for a few months.

Other factors that will be taken into account in the negotiation: will include your current salary, possibility of having a co-borrower or guarantor, history of all bad checks, assets in UAE and / or country of origin, family maintenance needs, current residence – whether in the United Arab Emirates or elsewhere, health and age.

Personal situation of the debtor: banks will look at your payment history, current earning capacity (as well as your spouse), current location (inside or outside the country), if a complaint has been filed against you for bad checks, your available assets, age, health and other personal circumstances. All of these factors play an important role in trading.

Legal side: Did the bank follow Central Bank regulations when granting your loans, did they lend you more than you could pay – these are some of the questions that will be weighed .

“Borrowers should also understand that banks are bound by guidelines imposed by law. For example, they can only lend up to a maximum of 20 times the monthly salary with depreciation not exceeding 50 percent of the borrower’s salary. If the bank has acted outside these parameters, the borrower can file a complaint with the Central Bank, ”Almazar said.

Common Misconceptions About Debt: “Insurance will pay the bank anyway” – When insurance pays the bank, insurance takes the place of the bank and therefore the insurance company will be the one who will enforce the bank’s right to collect tu.

1) Auto credit: Handing over your car will not automatically cancel your liability. In most cases, the proceeds from the sale of the car are not enough to cover your loan balance. My suggestion is that you sell your car to an end user who will assume the loan. You can even collect some of your payments from the buyer.

Remember that the loan is not canceled even when the car is handed over. If the value of the car is less than what you owe the bank (which is the usual case), you are still required to pay the balance.

2) Insurance and loss of employment: Insurance for loans will only pay the minimum payment due for a certain period of time only and if the cause of termination is not voluntary on the part of the debtor. This means that resignation or dismissal for just cause (such as a violation of labor laws) will not be considered covered. Always remember that you will need to file your claim with the insurance company. It is not an automatic process.

The request should be assessed first. You will need to present your termination letter clearly stating the reason for your separation. Worse, even those who have been made redundant due to business closures or layoffs (qualified for insurance) believe that insurance will automatically pay off their loans. This is not the case because you are required to inform your insurer and file your claims.

3) Automatic freezing of the End of Service if you have a salary loan: This will happen if you do not coordinate with your bank. Because your loan payment is taken from your paycheck, banks have charged a lower interest rate than loans that are not tied to your paycheck. Banks can restructure the loan based on your new pay. There are alternatives available even if your new business is not listed with your bank. Never compare your situation with others. Personal circumstances vary and banks will take a different approach depending on all of the circumstances.

4) “Do not disclose existing loans when applying for new loans / provide modified payslips to increase salary”

“Doing it for the purpose of getting a loan approved will not help you. By not being truthful in your statements to the bank, you limit your payment options. Worse, it will definitely put you in default sooner or later because your depreciation exceeds your income, ”Almazar said.

5) “You can’t close a credit card without paying in full. The interest rates of credit cards are high compared to personal loans. Do not extend to pay only the minimum. You can cancel your card by simultaneously converting your balance into a personal loan. Monthly dues can even be lowered and you will be assured that you will be debt free at the end of the payment term.

For further information: Barney Almazar, Director of Gulf Law

Janice Ponce de Leon is a former Gulf News reporter