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Recovery agent calls for change in bounced cheque regulations

UAE rules on debt logjam and bounced cheques are proving ineffective and require urgent reform, says loan recovery expert

  • By Sharmila Dhal, Senior reporter, XPRESS
  • Published: 22:51 September 19, 2012
  • XPRESS

  • Image Credit: Getty Images
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DUBAI: Thousands of expats languish in UAE jails for financial crimes brought on as a result of indiscriminate lending by banks and laws treating bounced cheques as criminal offences.

Debtors claim they have little recourse to repayment, while creditors say they are finding it tough to recover their money, with some even roping in professional debt recovery agents.

So is there a way out of this debt logjam?

M.I. Khan, CEO of MIK Legal Consulting, a Dubai-based debt recovery company, told XPRESS the UAE’s debt recovery system is proving ineffective and called for urgent reform in the sector. Excerpts from an interview:

 Why do you believe the debt recovery system needs reform?

It needs reform because it is proving to be ineffective. If European debt recovery processes are implemented in the UAE, they could bring the UAE increased investment from companies. Currently, debtors hold creditors to ransom as they are aware of the prolonged and expensive court action route which does not always provide dividends for the creditor. Due to the limitations in the UAE law, the creditor is at a loss through court action. We disagree with the bounced cheque regulations which result in police action. This is a completely unproductive method and should be replaced.

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What reform do you recommend?

We would recommend the establishment of a county court system like in the UK. This court operates in a simple and cost-effective way with only a judge at the helm of all decisions. Actions can be brought very quickly, typically for as little as Dh600. The judgment passed by the court is enforceable by law.

The system is fair as it allows creditors and debtors to enter into a formal agreement for repayment if the debt cannot be repaid in full at the time. The court can negotiate a time-frame. Enforcing penalties for breach of agreements is important as debtors need consequences. In the UK, a simple parking fine of £30 (Dh179), if not paid, could potentially become a £1,000 fine which is enforced in full. Debt recovery companies need to be granted powers to seize assets once a court judgment has been passed. These assets can be sold through auction to recover creditor funds.

 

What about bounced cheques?

The current criminal status of a bounced cheque should be totally overhauled. We live in a society where we have access to resources like never before that can be used to assess the worthiness of a candidate.

For example, let’s say a UK citizen is applying for credit and he looks like a good candidate based on job role, salary and disposable income. Banks should still liaise with credit reference agencies in the UK or request the candidate to provide his past credit history.

 

But there’s always a first 
time to default …

Banks should introduce skip insurance for expats. This would be an insurance policy which the debtor will pay for on a monthly basis with loan repayments. In the event the debtor is unable to repay the loan or skips the country, the insurance would repay the debt. We are currently in discussions with major insurance companies to bring this service to UAE financial institutions.

I would also recommend that banks redraft loan agreements and make them applicable outside their jurisdiction. With expat clients, the banks could take extra measures such as including clauses which allow them to recover debts in the client’s home country.

I would also advise UAE financial institutions to review their credit limits. They should use resources available to see what limits the client held in their home country. Currently, the credit limits on offer in the UAE are overwhelming. On average, the credit limit in the UK is around Dh6,500 and in the UAE, clients are offered 10 or 15 times this limit. We are in discussions with banks and financial institutions to offer an expat-screening service. With an agreement with the client, we would delve into his financial history from his home country and provide reporting for the banks.

 

How many debt recovery cases do you handle?

We handle tens of cases on a daily basis. Most have a similar scenario where the creditor is an international company and the local debtor refuses to pay because he believes nothing can be done against him.

 

What is your standard operating procedure in recovering debts?

We operate a ‘no court action’ policy which means every case we recover is through our own processes and mediation. Our processes are based on the UK OFT (Office of Fair Trading) regulations as we hold a UK and European debt recovery licence. We approach a debtor in an impartial way to hear his side of the case. Based upon this, we structure a solution which will be accepted by both parties.

Comments (12)

Your Comments
  1. Added 13:19 September 20, 2012

    If you ask me, the whole banking/ financial system all over the world needs major reform. The quality and effectiveness of the banking/ financial/ debt recovery systems in the US and Europe are going down the drain. We should start thinking out of the box rather than adopting what others have done and failed at doing.

    Wissam, Abu Dhabi, United Arab Emirates

  2. Added 13:01 September 20, 2012

    The suggestions given in the news will prove effective once implemented in the country. I have observedd through 2005 to 2010 that banks were giving credits to the loan applicants without any guarantee, were offering credit cards indiscriminately without any ensurance that the debtors would be able to repay or not. I received sms from banks to take credits cards, even the bank manager used to offer me free of cost. I used to decline on the spot becuase I knew beforehand the job position in UAE. If I am not in job, how will I repay.

    Tanweer, Karachi, Pakistan

  3. Added 11:33 September 20, 2012

    Don't we already have an insurance charge levied on all forms of credit taken from lenders? I beleive Credit Cards and Loans have put this in place, but customers do have an option to remove the Insurance Charge levied on their Credit Cards.

    Charley Joy, Dubai, United Arab Emirates

  4. Added 11:11 September 20, 2012

    Do you think banking and financial system is ready for this? I can say that the practices I've seen here do not exist anywhere on earth. If the debtors are left on hands of banks with floating interest rates and fancy practices of banks, how will it happen?

    Ajay Kharia, Dubai, United Arab Emirates

  5. Added 10:19 September 20, 2012

    The lawyer in this article has mentioned a few valid points but has also added a few im practical ways of debt recovery such as 'home country recovery' which is equivalent to reinventing the wheel. What we need are a few minor amendments to the law such as not arresting people for bounced cheques and rather issuing warrants to appear in a court where the judge hears the other side of the story and only decides on a realistic repayment terms. There should be the recovery agencies like in the UK where you can come to a mutual agreement on the repayment terms. In short, communication needs to improve as in today's environment, the recovery agents threaten you for delaying the payment by 10 days,forgetting the fact that you have paid only interest worth thousands of dirhams for years. This needs to change.

    Imran, Abu Dhabi, United Arab Emirates

  6. Added 10:14 September 20, 2012

    A year or two ago, due to miscalculation and confusion by both du and myself payment of AED100 was pending. few months after closing the services, I received a call from a recovery agent threatening me with legal action if I did not pay AED100. I mean come on, not only was this not required it was over the top antics resorted by such a big corporations in Dubai. After resolving the issue, du management issued no apologies. My question and concern is do these debt recovery companies only protecti the big corporations?

    farida, Dubai, United Arab Emirates

  7. Added 09:08 September 20, 2012

    Recovery in UAE may need litigation or police interference in case of bounced cheques. But there should be regulations / agreements for willful debtors who abscond the country. Being from a trading background i can see many cases of people starting business to eventually absconding with the creditors money.

    Faisal, Abu Dhabi, United Arab Emirates

  8. Added 09:00 September 20, 2012

    My friend, what you are syaing looks good in book not in real life, i have been in jail for 6 long months.... I used to have 2 companies in dubai and I was hit when my local sponser cheated me n took over my company and the cheques that i issued was returned.... in court they only ask 2 questions IS THIS UR CHEQUE IS THIS UR SIGNATURE and the next thing u knw is u r in jail for 6 months... authorities should change the rule and should give some security assurance to expat investors....

    m, dubai, United Arab Emirates

  9. Added 08:20 September 20, 2012

    I would like to know which bank in UAE follow that Policy (No Court Action), it might be HSBC. Why are you always making a comparison between UAE and UK? In UAE, Islamic Banks are the most successful Banks due to low interests.

    KINGMARCH, DUBAI, United Arab Emirates

  10. Added 00:25 September 20, 2012

    The UAE is an independent country. I believe the laws are very effective according to its trading conditions & its culture. The Rulers & the government are wise enough to make own & indepentent laws. We dont have to adapt other systems anyways!

    Abdulla, Dubai, United Arab Emirates

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