Without a credit bureau to check on loan practices, experts say unscrupulous lending practices will continue.
Calls for loan checks and UAE credit bureau grow despite bad debt ruling
ABU DHABI // Calls are growing for a credit bureau to protect citizens from unscrupulous banking practices, despite Dubai prosecutors announcing that 555 bad-cheque charges against Emiratis have been dismissed.
Fadhel Al Mansoori, 25, an Air Force cadet, said he and his Emirati friends were often pressured into getting loans.
"I was never planning on getting a loan but they told me I would have instant cash, which is why I got it," Mr Al Mansoori said. "They try to lure us, that is true."
Much legislation to protect customers has been passed since the financial crisis began in late 2008.
In 2011, the Central Bank made it illegal to extend new loans to customers whose current repayments exceeded 50 per cent of their monthly salary, and a loan could not exceed more than 20 times the applicant's total monthly income.
The legislation also included caps on bank charges for personal loans and minimum income levels for those seeking credit cards.
Last July regulations were further tweaked to allow banks to extend the loan-repayment period beyond the usual four-year deadline if a borrower ran into financial trouble.
Another regulation also barred lenders from cold-calling members of the public to offer them unsolicited loans and credit cards if they were not already customers of that bank.
But without a credit bureau to check on loan practices, experts say the issue will persist.
"The problem is a little bit alleviated by the new parameters, which are now standardised for all to follow," said Ali Al Nuaimi, an FNC member from Ajman with several years of experience in the banking sector. "But to my knowledge, not all banks stick to the new rules."
Mr Al Nuaimi has been a vocal advocate for solutions to the debt problem, and said he and other FNC members were assured by the Minister of State for Financial Affairs, Obaid Al Tayer, that a credit bureau would be operating by this year.
Although the credit bureau now has a board of directors, it is not yet fully functional.
"No credit bureau means there is not 100 per cent credibility," Mr Al Nuaimi said. "When a person comes and takes out a loan, there is no way to check if he has other loans with other banks."
Abu Dhabi Commercial Bank (ADCB) admits that, without a bureau, banks have very few clues to go on when ascertaining a customer's debt history, and instead must lend based on profiles.
"You have to ask: what is their occupation, income, background, education," said Arup Mukhopadhyay, head of consumer banking at ADCB. "If somebody says they won't pay we follow our collection strategy."
Mr Mukhopadhyay said banks always tried to demonstrate prudence when lending and minimise the risk of defaulting among customers.
Sultan Al Sammahi, an FNC member from Fujairah, has suggested that lenders be fined by the Central Bank if they are found to be taking advantage of locals.
"Interest rates need to be lowered," Mr Al Sammahi said. "And locals should not be made to pay any interest in the first year if they are setting up small to medium business. The first year they get no profit anyway."
* Additional reporting by Ayesha Al Khoori, Salam Al Amir and Thamer Al Subaihi