Chipping away at the personal debt problem

Since The National launched its The Debt Panel column last year, our experts have advised many struggling with liabilities. The panel gathered to discuss the way forward.

Philip King, the head of retail banking in the UAE at ADIB. Mona Al Marzooqi / The National

At the time of David Oliver’s arrest for unpaid debt in the UAE, he had no idea he was in trouble. In fact, he says he did not even realise his payments had stopped.

Sleeping on a plane during a stop off in Dubai from Bahrain to Kathmandu last October, the 62-year-old was woken by an announcement to identify himself. He quickly realised why. Once he was escorted off the plane he was arrested by the police. He is now being treated in a Dubai hospital because of a mental illness and cannot return home because of his outstanding debt of Dh335,000.

Mr Oliver, who is from the United States, is one of an unknown number of people who have fallen foul of the law in the UAE for failing to pay back money they borrowed from a bank or financial institution. His sister, Beverly Thornton, was so desperate for help to resolve his case, that she wrote to The National’s The Debt Panel column seeking advice.

Earlier this week, The National held a round-table discussion about what has happened since the online advice slot first launched a year ago – and what can be done to help residents such as Mr Oliver.

During that time the paper has received hundreds of letters from borrowers like him who cannot afford to cover their liabilities.

The panel heard the people who are deepest in debt, with liabilities which far exceed the legal limit, took out their loans before laws were introduced to control borrowing at a federal level.

But times have changed. Members said the launch of the Al Etihad Credit Bureau in 2014 has improved the industry.

Panellist Philip King, the head of retail banking at Abu Dhabi Islamic Bank, said the bureau has made the market more transparent in revealing just how much debt customers are exposed to.

“And it helps us engage in a dialogue as well as manage the financial decision making of the clients,” he adds.

Ian Hodges, a senior adviser at Al Etihad Credit Bureau, said among the top 20 banks, 80 per cent of new applications are now backed by a credit report.

And while the vast majority of customers are not overleveraged, banks have reined in lending as a result, he says. “Post launch of the Credit Bureau it has shown that the banks have taken the situation very seriously and brought it back because we simply give the information. And I think it does show it wasn’t there before 2014.”

But our panellists agreed there was still a big problem, with borrowers in over their heads, afraid to reach out to the bank for help – only worsening their situations further. That has to change, they said.

“If over the past year we have managed to put out this message that it is OK to talk about debt, I think now we have to send out a message from the banks to say it is OK to approach us immediately,” says Rasheda Khatun Khan, one of the debt panellists and wealth and wellness planner.

Banks appreciate this approach, says Mr King. ADIB, for its part, would speak to customers and try to understand their concerns.

“At least we would have some information if something does happen in the next couple of months. We would be in touch with the client and we would know how to get hold of them. They have not gone quiet and disappeared,” he says. “We have rehabilitated customers.”

Gaurav Bhalla, the founder and chief executive of Lotus Loans and Rescheduling Services, says of his clients, the people who are not yet in serious trouble are the ones hardest to help.

About a third of his clients make their payments but struggle with a high debt burden ratio, which is the percentage of their income they use to repay debt. The legal limit is 50 per cent.

“The biggest challenge that we have is banks saying, if the debt burden ratio is already at 100 per cent why would we provide restructuring facilities. It practically defeats the purpose,” he says.

“The customer would be shown the door. A lot of stuff has been done on the SME sector with restructuring their liabilities. But when it comes to individual debt there is a lot that needs to be done.”

All panellists agreed more help is needed for extreme cases such as Mr Oliver’s, where debtors have either spent time in jail or are facing it. A police case was filed against Mr Oliver for a loan he took out in 2014 while he lived here and worked as a creative writing lecturer at a university in Sharjah.

He later lost his job and returned to the US. But shortly after his return his wife asked him for a divorce. Wanting a new start, but seeking the familiarity of a region he had worked on and off for 20 years, he boarded a plane to Bahrain to find work. What he did not know at the time, according to his sister, Beverly, who lives in Louisiana in the US, was that his now ex-wife, who at the time managed the couple’s accounts, had stopped his loan repayments without his knowledge or consent.

He spent more than two months in jail before being released with nowhere to go, no money to pay the debt and no passport to leave the country with. His case is complicated by the fact that he suffers from a bipolar disorder.

He has spent almost three months in hospital receiving treatment after suffering an episode while trying to flee with a passport, with no entry or exit stamps.

“The US embassy has been working with him. They have the highest level officials working on this. We have asked the bank to negotiate with us. They don’t want to do instalments,” says Ms Thornton, who is one of Mr Oliver’s six siblings. The embassy did not comment on the case. He offered the bank a payment towards his debt of $25,000 from his US credit card when a representative visited him in prison, but they refused, according to Ms Thornton.

Neither she, nor anyone else in the family, can afford to pay off his debt, so they hope the bank will drop the police case against her brother so he can return to the US for treatment.

“I talked to David yesterday and he is not doing well. David is an extremely talented person. But he is bipolar,” she says, adding that the Dubai hospital treating him has pledged to keep David until he can return home.

“They are showing so much mercy on my brother. I am very grateful for that.”

For his part, Mr Oliver wants to be released from the hospital so he has the opportunity to pay off the debt.

“I am hoping that the embassy can help me get released from the hospital. I brought myself to this hospital. Now I am trying to get released so I can work and pay off my bank debt. I hope to collect the money or receive a full pardon,” he adds.

During the round-table session, Alice Haine, The National's personal finance editor, asked what more could be done for people in extreme debt situations.

“Can we solve their problem? Or are they going to have to skip?” she says.

Michael Routledge, the founder of savememoney.ae says, “Ultimately, are they going to skip if nothing is solved? Absolutely yes.”

“But they tend not to because where they are going to skip to they probably can’t get paid what they can get paid here.”

The solution, says Mr Hodges, is further legislation, which would help remove some of the fear people experience when approaching their bank or banks.

“In the end you need a bankruptcy law for individuals,” says Mr Hodges.

“It is talked about. Then there is a federal protection around you while you negotiate and I think that encourages all parties to come to the table.”

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