When the Egyptian IT development manager Adel Sayed signed up for a cashback credit card from his bank four years ago, he did not expect to be plagued with calls offering him loans.
“I have a Mashreq MasterCard with a big limit – Dh144,000,” says Mr Sayed, 38, a father-of-two. “It was Dh90,000 originally, then it was increased to Dh120,000 then, just recently, to the current limit.”
Mr Sayed says he spends about Dh10,000 a month on the card and never fails to pay it off in full each month, as he wants to avoid paying interest for religious reasons.
Despite this, Mashreq often offers him the available balance as a loan – a practice mirrored by other UAE banks.
“They say they will offer me Dh134,000. Then it changes based on my circumstances, and they offer me Dh88,000 over six, 12 or 18 months,” he says.
“I get many calls – sometimes offering an interest rate of 0.84 per cent, sometimes even with no interest because I’m a ‘privileged’ customer who pays their salary into their account as well – but with a 2 per cent processing fee. But I do not like loans at all – and not only for religious reasons. I am not comfortable with them; I never feel safe taking a loan.”
Mashreq declined to comment on the case, and these “loans on cards” are not products advertised on its, or any other bank’s, website.
In 2011, the UAE Central Bank capped loans at 20 times monthly income and, two years later, went further by introducing a debt-burden ratio (DBR) that limits any resident’s debt repayments to a maximum of 50 per cent of their monthly income.
This is why an assessment of Mr Sayed’s finances by Mashreq would mean that they could offer him no more than Dh88,000 based on his salary and any other debt burdens. Its original offer – Dh134,000 – was over 50 per cent more than that, when based solely as a “headline”, on the available balance of his credit card limit.
There can be benefits for holding a credit card: the cashback card Mr Sayed has – at 1.25 per cent per dirham spent, plus 5 per cent back on his children’s school fees – makes him about Dh2,000 a year. But because he does not utilise the full balance, it makes him a target for a “credit-card loan”.
As cardholders are already customers, who usually transfer their salary, the advantage of such a loan is that their bank already has all the information it needs, has preapproved you for the loan and can transfer the money quickly.
But easy access to loans can allow debt to spiral.
Keren Bobker, a financial adviser with Holborn Assets and The National's On Your Side columnist, says that many people in the UAE are carrying far too much debt.
“Too many have borrowed money unnecessarily to fund their lifestyle,” she warns. “It takes willpower to say no when offered easy credit. I have come across numerous cases where people have credit card and personal loan balances that are ridiculously high, with monthly repayments far in excess of 50 per cent of their income.”
The National has been inundated with letters from readers with mounting debts since we began running a series of articles on the issue in the summer, highlighting the dangers of easy access to credit.
The total value of all UAE consumer loans stood at Dh332.3 billion in November last year, according to the UAE Central Bank’s monthly banking indicators, up 5.3 per cent year on year.
And according to the Al Etihad Credit Bureau, in November there were about 6.75 million active loans in the country – about two per person.
In 2011, the Central Bank cracked down on financial cold calls in a memo sent to all banks. “It has been decided to prohibit marketing bank loans and other services offered to individual customers through direct contact by telephone,” it wrote. However, it did not specifically ban cross-selling to existing customers, nor mention any punishments if the ban was flouted.
“It does appear that some banks are disregarding this rule,” says Ms Bobker.
Jon Richards, the chief executive of the price comparison website compareit4me.com, says the restriction was a blanket ban, stopping calls across the board – including to existing customers.
“But the lift in the economy in 2013 saw cold calling make a big comeback – not just cold calling about single products, but also cross-calling,” he adds.
A quick perusal of money-comparison sites shows the lowest loan listed at 2.19 per cent flat rate (3.99 reducing), for a cash flow salary transfer loan from United Arab Bank.
The 2 per cent Mr Sayed says he was offered would equate to 3.77 per cent reducing (a rate that is calculated against the reducing, ongoing balance and therefore sees the interest reduce, too, during the loan’s lifetime), which would mean a monthly payment over 18 months of Dh5,036 and a total repayment of Dh90,648.
Jenny, a 35-year-old British teacher who did not want to reveal her full name, says her bank, Emirates NBD, calls her every two weeks on average offering a loan to the limit of her Skywards Platinum credit card, which it recently raised to Dh50,000.
“I spend about Dh3,000 to Dh4,000 a month on the card and have a two-year car loan with Emirates NBD too, for Dh55,000,” she says. “I never let them get far enough to tell me the rate or other details. The amount of calls is really irritating and the offers are totally crazy.” Emirates NBD did not comment on the case.
It is worth remembering that an unsolicited increase in your credit card limit, as seen by Mr Sayed and Ms Sadler, will count towards your possible debt liability and therefore affect your credit report. So if you are planning to take out a separate loan or mortgage, you should ask the bank to reverse any limit increase.
All UAE commercial banks are signed up to the UAE Banks Federation, which introduced a voluntary code of conduct in 2013, augmented recently by a customer charter pledging, among other things, to “only offer credit if they are satisfied that their customers have the capacity to repay and that it meets their customers’ needs”.
Customers do have the option of complaining to the UAE Central Bank, although it says “every effort should be made to settle the matter directly with the concerned bank/financial institution before filing a complaint with the Central Bank”.
Kunal Malani, the head of customer value management at HSBC Bank Middle East, stresses that individuals need to take the responsibility to plan for long-term needs and “use the right financial products to fulfil these needs”.
But he adds: “Working in tandem with the Al Etihad Credit Bureau, the banks need to ensure they promote responsible lending. At HSBC we employ a strict lending criteria that is rooted in understanding customers’ needs and their ability to fulfil their financial obligations.”
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