What to do if your bank blocks end-of-service gratuity owing to an unlisted employer

A lender’s entitlement to a customer’s final settlement dues in the event of a salary change depends on the underlying agreement between the parties

Banks can withhold a customer’s final settlement depending on internal policies and the contract signed, legal experts say. Getty Images

Banks in the UAE usually temporarily withhold an employee’s end-of-service benefits, if a person is changing jobs while still repaying loans or other financial commitments.

Often, the payout is released if you provide proof of income and route the new salary through the same bank.

However, cases are being reported where lenders are refusing to unblock the final settlement if a person's new employer is not an organisation listed with the bank.

S I, a UAE resident who does not wish to be identified, was made redundant by a company in May – having worked there for 17 years. He has a personal loan with Emirates Islamic Bank, and the bank refused to release his final settlement until they received a copy of his new visa and Emirates ID.

Two months later, Mr S took up a job with a lower salary. He was previously earning Dh16,000 ($4,356) per month whereas the new job pays Dh10,000. He has a monthly loan instalment of Dh7,761.

“When I gave the bank my new employment documents, they rejected my request and said they can't release my final settlement dues of 17 years because of internal policy that my new employer is not listed with them,” he tells The National.

“But at the time of signing the loan agreement, no one informed me that I would receive my final settlement dues only if I worked for a listed company.”

The bank deducted loan instalments for July, August and September from the customer’s final settlement without his consent. He wishes the lender would have restructured the loan instead, taking his lower salary into account.

He claims to have never defaulted on his loan. His complaint to financial ombudsman Sanadak was not successful.

“The bank has closed my case after offering a partial payment of Dh20,000 from my final settlement. I told them I need at least Dh50,000 but they cut me off,” Mr S adds.

An Emirates Islamic representative says the bank has been in contact with the customer and informed him that his final settlement with the previous employer cannot be released, as per the bank’s policy.

“As an exception, we have proposed a solution to release partial funds and apply the rest towards the finance he has taken from the bank. However, this proposal was not accepted by the customer,” the representative says.

End-of-service gratuities are lump-sum payments that all employed residents are entitled to after completing at least one year of service. Gratuity payments are covered by UAE labour law and the sum depends on an employee’s length of service and basic salary.

Personal loans are a type of unsecured financing provided by banks to individuals who require additional funds for various purposes. When applying for a personal loan, the bank evaluates the applicant's creditworthiness and repayment capacity based on factors such as income, job profile, employer details, length of service, credit history and debt-burden ratio.

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If an individual changes jobs, the bank will re-evaluate their risk profile based on their new employer details, job profile and income.

Michael Kortbawi, partner at law firm BSA Ahmad Bin Hezeem & Associates, says banks can withhold a customer’s final settlement, or any money in the account, depending on internal policies.

However, this must have been provided for clearly in the contracts or forms the customer signed as part of his or her relationship with the bank, he says.

The Emirates Islamic Bank website states: “As per the terms and conditions on the loan or credit card contract, the bank can block or debit any outstanding amounts from your end-of-service benefit.”

Mr Kortbawi says that it, therefore, appears likely this was a term agreed in the terms and conditions of the account agreement signed, making it possible for the bank to block and debit any outstanding amounts, in line with internal policies.

“Banks are also legally allowed to collect payment for existing loans through end-of-service benefit gratuity, but this must also be provided for in the terms of the account contract. These clauses are usually precautionary, protective measures and the bank reserves the right to use them at their convenience and discretion,” he explains.

“We also recommend contacting the bank’s manager or their customer relationship manager. It may be worth exploring with them the option of restructuring the loan with a lower monthly instalment in exchange for releasing the end-of-service gratuity if the bank is concerned about your ability to repay your monthly payments on a lower salary or do not have sufficient trust in your new employer.”

If the bank does not provide an explanation or respond to questions on how to sort out the situation, the customer will need to file a formal complaint directly with the bank. If the situation remains unresolved, he may then consider filing a complaint with the UAE Central Bank, but only after an attempt to settle the dispute with the bank first, Mr Kortbawi says.

The underlying contract between the bank and the customer may include a provision about minimum monthly salary as a guarantee of the loaned amount

Ludmila Yamalova,
managing partner, HPL Yamalova and Plewka

Ludmila Yamalova, managing partner at law firm HPL Yamalova and Plewka, says the underlying contract between the bank and customer may include a provision about the customer’s minimum monthly salary, as a guarantee of the loaned amount.

“Such a clause could include a provision allowing the bank to freeze the customer’s end-of-service payments, in the event their salary falls below the minimum requirement. This clause could then be triggered even if the customer does not default on his obligations,” she explains.

“Such contractual remedies are within the UAE legal framework. Using the end-of-service entitlements as a guarantee to ensure the bank’s interests is not contrary either to the UAE’s Civil Transactions Law or the UAE Commercial Transactions Law, which are some of the governing legal authorities in such transactions.”

However, in cases where there is no specific provision in the contract, which would allow the bank to freeze the customer’s end-of-service gratuity in the event of a lower salary, the bank does not have a legal right to simply freeze this amount. Especially if there is no default by the customer and the new salary is still sufficient to cover the monthly loan payments to the bank, Ms Yamalova adds.

In such cases, the customer should approach the bank and provide the relevant documents showing his/her continuous ability to make the loan payment, requesting the bank to unfreeze the amounts, she recommends.

“It may be that the bank will wish to re-structure the customer’s loan, given his/her new earning potential. This could also be a beneficial solution for the customer, allowing him to extend his payment further, by lowering monthly payment, to account for his lower monthly salary,” she says.

“Should the bank refuse to co-operate and refuse to release the customer’s end-of-service entitlements, the customer can file a complaint against the bank with Sanadak. In the complaint, the customer would cite: 1) their entitlement to benefiting from their personal funds and assets on the basis of the Civil Transactions Law and 2) the banks’ obligations to ensure that the individual has access to their lawfully acquired funds, as per the Central Bank’s regulations and Consumer Protection regulations.”

Ms Yamalova says it is imperative that customers read their loan agreements carefully before making commitments. They should also keep banks informed when there is a significant change in their earning abilities, so as not to give the lender a reason to pre-emptively freeze the customer’s funds, she adds.

Meanwhile, Rasheda Khatun Khan, a wealth and wellness expert, founder of Design Your Life and the author of Millionaire Mindset – 6 Steps To A Wealthy Life, encourages the customer to seek legal counsel and contact the UAE Central Bank to lodge a complaint.

Carol Glynn, founder of Conscious Finance Coaching, says the customer should put pressure on the bank to be reasonable.

“If they are adamant on not releasing the money for now, maybe they can release it after his employment probation period,” she suggests.

“He should also check his loan paperwork to see if this is disclosed as a consequence of changing to an unlisted employer and if not, he can go through the process to raise a complaint with the central bank.”