I was an employee at a financial lending entity and also had a credit card offered by them, for which they were deducting the minimum payment from my salary. Recently, I was made redundant because of the impact Covid-19 had on my company’s business.
The credit card limit was Dh11,000, but due to late fees and interest, I now owe Dh15,789. I used the credit card for retail purchases and general living expenses as I was working on a commission basis and had no salary in 2016.
I had requested an instalment plan to pay off the card, but this was declined by the collections team, which said that this facility was not available to staff. On top of my minimum payments, I was also paying Dh100 a month towards a credit shield insurance plan and had done so for the past four years. However, the company's collections team deducted the entire amount owed on the credit card from my end-of-service payment, barely leaving me with any money for my survival.
According to the policy terms, I was required to inform the collections department within 30 days that I had lost my job to claim an insurance payout that would cover the monthly payments on my card until I could find new employment. I contacted the call centre and informed them of this seven days after I lost my job.
The collections team is now saying that the insurance company changed the policy and it was no longer offered to staff – even though I continued to pay the Dh100 a month for this service. The total amount I have paid towards the credit shield insurance is more than Dh6,000.
I would appreciate it if I can get clarity on what rights I have to claim the credit shield insurance as I feel it is totally unfair, especially as I had paid it for more than four years. SR, Dubai
Debt panellist 1: Philip King, head of retail banking at Abu Dhabi Islamic Bank
While you have been placed in a difficult position with your recent job loss, it is great to see that you have taken the initiative to further examine the nature of your situation and to try to clarify your rights and obligations with your lender.
Given that the lender is also your employer, the first point of contact should be your HR team. The credit shield policy changes and use of your end-of-service benefit to clear the card balance should be clarified in line with whatever contractual arrangement you have with the company.
In general, lenders do include a clause in their agreements that entitles them to collect their receivables through gratuity payments as a precautionary measure against default. This may be different in your case given you were employed by the company.
It is particularly important to confirm whether the sudden policy changes in your credit shield insurance are applicable to you as per your contract. The changes in terms and conditions of your policy should have been communicated to you well in advance as it is designed to afford protection for exactly the situation in which you now find yourself.
There is a lot being done to protect vulnerable individuals during this time, and lenders are being encouraged to support customers who are struggling due to changes in their income and job losses.
When dealing with the collections team, you should continue to explain your situation, reassuring them that you are looking for a job, committed to repaying your debt on time, and that you will be providing them with the full details of your contract once your new employment begins.
If there are no clear responses, you can consider approaching the Consumer Protection Division at the Central Bank of the UAE, which works to protect consumers from unfair banking practices. Ensure that you provide all the necessary proof of your correspondence, copies of your contract and all related paperwork. Given Covid-19 precautions, you can complete this process through their online portal or by visiting their branches to lodge the complaint in person.
We encourage you to remain optimistic and continue your job hunt. You are on the right path and taking suitable steps to deal with this situation appropriately.
Debt panellist 2: Ambareen Musa, founder and chief executive of Souqalmal.com
It is standard practice for banks in the UAE to have the first right over a borrower's end-of-service benefits in case there is an outstanding balance on an unsecured loan, such as a personal loan, owed to them. Once the borrower's employer credits the end-of-service benefits including gratuity and final salary dues into his/her account, the bank can use this amount to offset against the borrower's personal loan debt . This is usually very clearly mentioned in loan contracts.
In your case, the credit card provider and employer are the same entity, so it is likely that they've used the terms and conditions of your employment contract as well as the credit card contract to use up your end-of-service gratuity towards the outstanding debt.
Further, your concerns about the credit shield are also justified. One of the biggest benefits of having credit shield protection is the insurance coverage it offers to repay your outstanding credit card balance in case of unforeseen and involuntary unemployment.
It would have been okay for the card provider/employer to not offer you this benefit at the time of signing up for your credit card, but to have the benefits denied after you've been paying for it for over four years is unfair. It is best to approach a legal expert and ask them to review both your employment and credit shield contract.
Opting for legal expertise is important here because credit shield contracts come with a long list of terms, conditions and exclusions. For example, to claim involuntary loss of employment, the redundancy must not be a result of underperformance, misconduct, etc. A full-time permanent employment contract may also be another requirement. The card provider can use these terms to their advantage, so having a lawyer to go over these documents is a good way to get started.
On the employment front, while you're on the lookout for a full-time job, you could also look for part-time or freelance work to start earning some cash and support yourself financially.
Debt panellist 3: Stuart Ritchie, chartered financial planner at AES International
Banks in the UAE often place a lien on a client’s bank account when they either receive their end-of-service gratuity or when they are informed that the client has been terminated. In your circumstance, as your lender is also your employer, they have the option of freezing funds in your bank account in order to cover any outstanding debts.
The collections policy of your bank will be documented in detail in the initial credit card agreement that you signed with the bank. It would be a good starting point to review this agreement in detail. However, there are often clauses that permit the lender to freeze and collect any outstanding debt.
A major benefit of credit shield insurance is that it provides involuntary loss of employment benefits. However, these benefits vary significantly between financial institutions and there are often several exclusions included such as percentage of debt to be paid off or the circumstances of job loss.
Several banks implement a policy that requires the cardholder to continue to make payments on the card even while they are unemployed, and while the insurance claim is being processed. This is implemented to prevent a customer’s existing credit rating from further deteriorating as there are often delays associated with credit shield insurance policies due to them being underwritten by a third party insurance provider.
Under certain circumstances, the validity of the insurance policy may be surrendered if the cardholder does not make these payments. Unfortunately, this makes it very difficult to break the debt cycle as most people who claim this type of insurance do not have the emergency funds required to pay their debts at short notice.
You might want to consult with legal counsel regarding your credit shield policy or pursue the insurance company directly for the claim. It would also be beneficial to lodge a formal complaint with your bank and try to discuss your situation with a senior staff member or former manager.
They might be able to help with refinancing the credit card debt and extending your repayment period to reduce the regular monthly instalment you’re paying. This will allow you to service the debt in a more manageable way. Alternatively, you can file a complaint with the Central Bank of the UAE through a form on its website or by calling the toll-free number 800 CBUAE.