Law Blog Categories


Loan Defaulters and Bank Settlements

Published on : 05 Nov 2019

Do you have outstanding bank loans and credit card payments?

Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.”

Often, unexpected events can astound an individual in an array of ways like a change in employment, personal emergency, etc., which may rapidly throw the individual off track. Consequently, in the long run, one may “default” in payment of credit card bills or loans. Bank settlements in today’s times can be monotonous as well as painstaking. The jocundity of swiping your credit card whilst forestalling the incapacity to repay the same or default in repayment of loan could lead to drastic and harsh scenarios such as the bank imposing travel bans or resorting to severe legal action including cheque bounce and civil cases filed for recovery. How does one sleep peacefully at night with the scare of such legal action hovering in his mind whilst staying perturbed about negotiating with banking sharks as well as obdurate debt recovery agents?

Matters that involve corporate defaulters or wilful absconders will face legal consequences that include prosecution, court claims and other legal remedies banks and/or their lawyers in Dubai or overseas may choose to initiate. Further, Interpol red alert is also a consequence of such default. Additionally, there are also cases where individuals are unable to return to Dubai on account of domestic/family emergencies, untimely loss of employment being communicated while they are in their home country, or where an employee is undergoing medical treatment for a long time. The so-called “unintentional defaulters” desire to settle their claims with banks and wish to return to the United Arab Emirates (UAE) to secure their future and work in the country.

Naturally, every lender is suspicious and it is valid for loan specialists independent of whether it is an individual, an association, a foundation or a sovereign government. The Oxford Dictionary meaning of “default” signifies the inability to pay, act, not meet cash calls, and so forth.

Limited understanding of the UAE laws and regulations, lack of language or procedural knowledge, inexperience in negotiating skills, unreasonable and untimely pressures from collection agents, coupled with lack of security deter or prevent the unintentional defaulters from settling their matters in a timely manner. It is vital to be conversant with the local laws, understanding your legal rights, obtaining the proper set of settlement documents, knowledge of penalty and interest charges that can be imposed, the return of security documents, grasping the precise process besides ensuring fair negotiations as they are all very important in such process. A default is also overlooked by a bank as serious and grave offence which often compromises communication between the parties leading to a dead-lock, thereby preventing the defaulter from re-entering the UAE. 

Dishonour of cheques and travel ban?

In most situations of default in loan and credit card payments, one simply hands over blank signed cheques as a guarantee to the banks and/or their agents for quick imbursement of loans or acquiring a credit card, which now is the trump card held against the debtor in a bank settlement by the bank. These cheques are used by the creditors as a weapon against the debtors by bounding the cheque and proceeding towards immediate criminal complaints followed by a travel ban.

In addition to criminal action, the banks may additionally evaluate and opt for other remedies such as civil claim or consider other steps that their counsels may deem expedient in the best interest of their client, the bank.

That said, it is imperative to understand that in line with a criminal order being Decision Number (1) of 2017 (Emirate of Dubai), Decision Number (119) of 2019 by the UAE Chief of Public Prosecution (for United Arab Emirates) as well as Decision Number (2) of 2018 (Emirate of Ras al Khaimah), cheques amounting up to AED 200,000 (UAE Dirhams two hundred thousand) can be subject to a jail term towards any cheque bounce or for small claims which is upon the discretion of the Prosecutor to forward the matter to the courts of UAE or not. Banks can, however, present these claims before the authorities, wherein the defaulters will be subject to a fine (without undergoing any court order or prosecution).

The events which may constitute a default in loan agreement includes, but is not limited to:

  • Evasion of judicial judgement;
  • Bankruptcy or insolvency proceedings against the borrower;
  • Significantly opposing change;
  • Breach of warranties, covenants and representations;
  • Force majeure.

General Clauses in Loan Agreement

Certain clauses that are generally integrated within a loan agreement include:

  1. Waiver: This is where the lender agrees to waive the breach or the event which gives rise to the occurrence of a default;
  2. Forbearance: This is where the banks concur not to announce an occasion of default to practice any cures;

Negotiate through an expert…

It is in difficult situations like these wherein banking experts specializing in bank negotiation and loan settlements come in the picture. Yes in a land of expats there are multiple changes in one’s living standards and financial situations which at times leads to default in loan, but does not make someone a wilful defaulter.

Specialized lawyers in bank settlements will examine the situation along with the facts post which shall represent you before the disturbing debt recovery agents and the respective loan recovery bank associates. Having a specialized lawyer in UAE shall give the debtor a consolidated chance to have a flexible payment plan or a concession on your interest amount at times along with the principle and shall provide you the cushion to plan your finances.

A bank settlement expert helps to mentally secure the debtors for the outstanding amount, who are now post their involvement looking forward to a logical loan settlement rather than chasing a defaulter.  The services provided by the banking lawyers shall include drafting and responding to legal notices, corresponding via telephone, email and letters with the creditors and banks, as well as attending settlement meeting on behalf of the creditor.