The Debt Panel: 'My loan repayments are now 80% of my salary'

The Dubai resident is struggling to manage financially as the bank is refusing to reschedule his repayments despite providing documentation proving his lower salary

Steven Castelluccia / The National

I have signed a new contract with my current company for a much-reduced salary because of the Covid-19 pandemic. The new contract commenced on December 1, 2020.

Despite informing my bank of my situation and producing all the documents it requested to prove my new circumstances, it is refusing to reschedule my loan payments.

The original loan tenure is for 42 months and I will finish paying it off in February 2023. I have never missed a payment.

When my new contract started, my end-of-service benefit was transferred to my account in January this year. The bank took it immediately and credited it to my loan account, which reduced the amount owing by 40 per cent.

For the past four months, the bank has continued to take the equated monthly instalment – which now represents more than 80 per cent of my monthly salary.

Clearly, this is totally unmanageable and is contrary to the Central Bank of the UAE’s Circular No 12/93, which restricts loans to 20 times a person’s monthly salary.

To try to buy some time to reschedule the loan, I requested a loan deferment in March. However, the bank refused to grant me this contrary to the existing loan agreement, which allows for two payment holidays per year.

I wrote to my bank on February 24 and raised a written complaint, but have yet to receive a response or speak to anybody personally. I would be grateful for any advice you may be able to provide to help me fix this issue. DD, Dubai

Debt panellist 1: Philip King, head of retail banking at Abu Dhabi Islamic Bank

The Covid-19 pandemic has certainly resulted in a lot of unanticipated financial pressure and uncertainty for many individuals. It is great to see that you have taken the initiative and swiftly contacted your bank following your salary reduction. You have also clearly taken your time in researching your rights in this situation, which will be greatly beneficial when negotiating with your bank, along with your strong record of timely repayments.

The Central Bank of the UAE extended the Targeted Economic Support Scheme (Tess) scheme to June 2021 to ensure that individuals and businesses are financially supported as they recover from the economic impact of Covid-19. Under the Tess programme, you can request a payment deferral or payment holiday on your loan. During this time, banks are being highly encouraged to be flexible and understanding of their customer’s situations.

If your case isn't resolved and you wish to raise a formal complaint, you should inform your bank in writing that you believe you have been treated in a manner that goes against the UAE Central Bank's code

Firstly, we recommend that you reopen the discussions and escalate the matter to the highest representatives at your bank. Reiterate how your salary reduction has placed you in a difficult position financially, especially with more than 80 per cent of your monthly salary going towards your repayments. Provide them with all the documents proving the salary reduction.

It is in the bank's interest to resolve your issue promptly and mitigate any risks of default, so they should be highly likely to cooperate with you on a payment deferral or even new repayment terms.

Banks are required to enforce an independent and fair complaint resolution mechanism to help address consumer complaints, and it is the bank’s responsibility to try and resolve their customers’ complaints within a reasonable time period.

If your bank does not offer you a valid response within 30 days of receipt, you are entitled to escalate this matter to the UAE Central Bank's Consumer Protection Department. You will need to provide your complaint reference number, along with proof of your efforts to contact the bank for the Consumer Protection Department to follow up on your case and provide you with decision.

If the matter is still unresolved and there is a dispute regarding an obligation under a bank agreement, you will need to seek legal advice, and, if necessary, you can file the dispute with the courts for resolution.

Debt panellist 2: Stuart Ritchie, director of wealth advice at AES

In the first instance, try to speak to the most senior person you’re able to at your bank. Going to your bank branch in-person may help you to do this. Make it clear you intend to raise your situation with the Central Bank’s Consumer Protection Department if you are not given an answer and solution.

Given your history of timely and full payment, along with your difficult circumstances, the bank should be willing to support you as you meet the criteria of Tess. In practice, banks may vary in their willingness to grant payment holidays or amendments to repayment plans, so you will need to be persistent.

It would be helpful to provide documentation from your employer stating that you faced a salary reduction in your new contract due to circumstances related to Covid-19 to support you in such conversations.

If your case isn’t resolved and you wish to raise a formal complaint, you should inform your bank in writing that you believe you have been treated in a manner that goes against the UAE Central Bank's code.

Inform them that you would like to come to a compromise on the situation which is in both parties’ interests. If they do not provide a satisfactory outcome, you can make a complaint to the Central Bank’s Consumer Protection Department. You can do this online by filling in a form, or by calling 800 22823.

Debt panellist 3: Ambareen Musa, founder and chief executive of Souqalmal.com

It can be disheartening to see that your lender is refusing to offer you any financial respite when you need it most, even after having diligently kept up with your loan commitments to date.

Unfortunately, the fact that your old employment contract ended and you received the corresponding end-of-service benefits in your account triggered a standard bank protocol. The bank froze your gratuity and used it to partially offset your personal loan.

As standard practice, banks in the UAE add a clause in personal loan contracts that gives them authority to adjust and offset the borrower’s end-of-service benefit towards the outstanding loan. The aim is to ensure the recovery (at least partially) of an otherwise unsecured loan, which was granted to you on the basis of your salary.

The fact that your bank has also refused to grant you the payment holiday may also be a direct result of the loan recovery procedures it has undertaken in your case.

Banks usually review loan rescheduling and restructuring requests on a case-to-case basis, looking at factors like borrower profile, credit history and employment details.

It is not uncommon for banks to offer a restructured repayment plan to qualifying borrowers. Since this restructuring provision increases the risk taken on by banks for a longer loan term, the banks may levy a higher interest rate to counter that. Now that the bank is refusing to restructure your loan even after you have provided proof of your reduced salary means that you may have to escalate matters to get some much-needed help from the bank.

You could start with lodging a complaint with the bank first. Remember, this is now a prerequisite to filing a complaint with the UAE Central Bank. If your bank refuses to accept the complaint or does not resolve it satisfactorily within 30 days, you can escalate it further by submitting a formal complaint with the Central Bank.

You may also be forced to dip into your savings and investments, or look into alternative financial assistance from your family and close relatives in the interim. Just be sure to keep all lines of communication open with the bank, keep tracking your complaint and what resolution it may propose. It is important to also keep a record of all your communication with the bank if you take your complaint to the Central Bank.

The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to [e-mail]