ABU DHABI // Loan defaulters no longer face prison when their security cheques bounce.
Expatriates jailed for defaulting have been released from prison and federal courts no longer accept bounced cheques presented by lenders as evidence of a crime, which effectively decriminalises defaulting on a loan.
The relaxation for expatriates follows a similar move in October that affected only Emiratis. It the result of a decree by the President, Sheikh Khalifa, that expatriate and Emirati loan defaulters should be treated equally.
“In line with the directives of Sheikh Khalifa … and in the spirit of fairness and equality, the courts have stopped as of last month accepting collateral cheques presented as a criminal tool against expatriate debt defaulters,” Ali Khalfan Al Dhaheri, head of the legal affairs department at the Ministry of Presidential Affairs, told The National’s Arabic-language sister paper Al Ittihad.
Judge Jassem Saif Buossaiba, head of the judicial inspection department at the Ministry of Justice, said: “Federal public prosecutions in the country have, indeed, released expatriate detainees, as has been the case of their Emirati counterparts who were freed last October,” he said.
The threat of imprisonment existed because commercial lenders require borrowers to sign a cheque for the total amount of a loan, plus interest. If the borrower defaulted on repayments, the lender would present the cheque for payment. When, inevitably, it bounced, the cheque would be produced in court as evidence of a crime.
In many countries, defaulting on a bank loan is considered a civil matter, and criminal courts are not involved.
Abdul Aziz Al Ghurair, chairman of the Emirates Banks Association, told The National in November that any moves to ease criminal penalties for expatriates’ bounced cheques should be phased in to allow a period of adjustment for commercial lenders.
“There has been thinking in the UAE of decriminalisation of postdated bounced cheques across the board, but you cannot do that without finding an alternative instrument,” said Mr Al Ghurair, who is also chief executive of Mashreq and chairman of the DIFC Authority.
“If there is a proper system and an alternative system maybe the economy will go towards that, but it has to be introduced over a period of time.”
In 2011, nearly 1.6m cheques with a total value of Dh55 billion were returned. Central Bank statistics do not break those figures down into the cheques that were unpaid because of a lack of funds, and those that failed for technical reasons.