UAE residents can avoid a debt spiral after job loss
A couple of years ago, Robert Strachan had everything he could wish for.
He had a wife, a home, a business and life was good. But soon, it all started to unravel.
First his wife got into financial trouble after investing in a business that failed. Then she left their relationship, saddling him with her debt.
“She was bored so she went into a business, and she got completely ripped off to the extent that it cleared her out, unbeknown to me, with her credit cards. I stepped in and bailed her out once, but it was too far down the line by then so she left the country,” says Mr Strachan, from Scotland, who moved to Dubai more than a decade ago and asked for his name to be changed for the article.
The National has been inundated with letters from readers with mounting debts since we began running a series of articles on the issue this summer. And, for many, the problem is magnified by job loss.
In one case, a banker was turned down for a job with a financial institution because of his large liabilities.
For Mr Strachan, when a couple of his own business ventures failed – one offering yacht chartering, and another, a franchise selling cleaning products that he exited because he did not agree with its management – he took a job working for a multinational company.
“I worked my socks off, specifically to solve my wife’s issues and also to work,” says Mr Strachan.
Mr Strachan says he earned hundreds of thousands of dirhams in commissions, but that the company would not pay him, instead offering a permanent position on a salary of Dh5,000. He turned down the offer and found another position as a general manager of a renewable energy business, a role that also floundered when the owner lost his job and decided to run the business himself, later letting Mr Strachan go.
He has not received a salary since June, leaving him homeless and with two credit cards and a personal loan he cannot afford to pay back.
“I had a loan [which I was paying] Dh1,800 a month on and I was paying about Dh1,200 on two credit cards, but I was ramping up the amount because I had no other source of income,” he says.
He currently owes Dh40,000 to Dunia Finance for a loan, plus Dh7,500 on a credit card to the same lender, and around the same on a Najm credit card.
The banks declined to comment on the case.
So what can UAE residents do if they lose their job or switch from one company to another when they have debt?
“Ending your employment with one company can trigger an alert with your existing bank and can cause problems,” says Jon Richards, the founder and chief executive of Compareit4me, a website that allows shoppers to compare and apply for loans.
Experts say it is possible to move jobs if you have debt, but warn it is best to talk to your bank before you make the move to avoid any potential issues.
When changing jobs, your last salary will be marked as a final payment or end-of-service benefit by the employer or sponsor, says Josiane Assaad, the head of content at Souqalmal.com, another loan comparison website.
“This will usually coincide with your visa cancellation from the employer’s end. In case you have any outstanding loans, the bank will freeze the account and carry out the required due diligence to ensure you will be a position to pay off your debt,” she says.
“You will have to visit the bank branch and update your new employment and salary details with the bank. Once you provide the bank with evidence of your new employment and salary, the account can be released immediately,” adds Ms Assaad.
The time that can take varies, she says, and depends on how fast the customer can provide the new employment letter and how quickly the bank conducts the due diligence.
However, if you cannot provide details of your new job you may never see your end of service benefit.
“As per the terms of our loan, the customer’s end-of-service benefit can be utilised to settle the outstanding loan amount. However, we touch base with the customer before taking any such action to understand the customer’s intent and to agree on a mutually beneficial solution,” says Tooran Asif, the head of personal banking at Mashreq.
Mr Asif said the bank would use a borrower’s final payment to settle debts “rarely and primarily if the customer doesn’t have a job at hand, is uncontactable or is moving to a different country and is not able to arrange for a suitable guarantor as per our terms”.
While Mr Strachan is currently taking his former employer to court for the lost commission, he says he did take the option of insurance for loss of earnings when he signed up for his credit cards and loan.
“But I notice that I am still getting reminders [to pay] and they are computer generated things, but they are incredibly intimidating,” he says. “They are spewing them out all of the time.”
Plus the job-loss insurance policy is refusing to pay out in the case of the renewable energy firm because his termination letter says he lost his job through a lack of performance, a claim he denies.
Ms Assaad, from Souqalmal, points out that “job loss insurance benefits can be availed only in case of involuntary job loss” and that buyers should “make sure to check the fine print regarding the termination circumstances in the policy, to see if there are any exclusions”.
Mr Strachan does not have much hope that he will win the argument with the insurer.
“My view right now is I take every day as it comes. I am deeply depressed. It is an awful situation. I don’t know where I am staying or eating. I cannot think in the long term or even make any strategic decisions in my life. I am not able to do so right now,” he says. “I don’t know what else could happen. I am at the bottom of the pit at the moment.”
However, it is not all bad news. He has found another job, which he is due to start next month.
In theory this should be the solution to his problems, but long-term he needs to protect himself against future job loss.
Ms Assaad says it is always advisable to keep some cash aside if you are changing jobs.
And it pays to always keep your bank updated.
“Go into any branch of your existing bank and book an appointment with an adviser. They will be able to inform you of the correct process and ensure that there are no bumps along the way,” says Mr Richards.
One of the first things a bank will do when you inform them you are changing jobs is assess your new employer.
“Based on the customer request, the new employer is evaluated and placed on the bank-approved list,” says a spokeswoman for Abu Dhabi Islamic Bank (ADIB). “The customer is required to transfer his salary from the new employer to ADIB. If the employer is unacceptable to ADIB for any reason, the matter is dealt with on a case-by-case basis. If the new employer cannot be approved by ADIB, the customer will still be required to meet the contractual obligations and continue with the payments. The key issue is to ensure that repayments are not disrupted throughout this process.”
At Mashreq, if the new employer is not listed, the bank requires a salary-transfer letter from the employer or an appropriate guarantor. “Subject to this the existing loan continues,” says Mr Asif.
“Mashreq understands and respects the customer’s professional priorities and hence we are open to accept a salary transfer letter, satisfactory to our terms, from any company. The loan’s terms and conditions remain fixed usually, however if the customer’s debt service ratio of 50 per cent laid [down] by the Central Bank of UAE is breached, we may discuss suitable restructuring options with the customer or may ask the customer to partially pay-off the loan.”
Banks may have different regulations surrounding new employers that are not listed, so customers should check their loan terms to see if it could result in a violation of terms, say experts.
Mr Strachan is within weeks of starting his new job now, but his employer, a small business, will be unlisted, which is a worry.
“I will take the job … at this point I can’t be very choosy,” he says. “I am uncertain because of what I’m going through right now, being in a small company and being treated like I am nobody in the financial world.
“If I work for a big multinational I can at a single stroke get all the money I need to borrow on the basis of my earnings and the strength of the company, to sort my issue out,” he adds. “Working for a small company or a new company is nothing of the kind. Instead they say we are a small company, why should we support you?”
Updated: December 18, 2015 04:00 AM