The UAE Central Bank's intention to cap interest rates on consumer credit cards at 18 per cent annually is a welcome initiative as it will help ease the debt burden on the UAE's average wage-earners. Credit card debts have remained a major source of concern for a long time for the average lot who spend large sums in interest on balances due every month.
Although the cost of the credit card itself has come down drastically over the last two decades, interest rates have not. The UAE's credit card market largely remained unregulated with each bank offering its own package.
Despite hectic competition among retail banks to woo consumers, the interest rates have largely remained well above the international and Gulf Cooperation Council (GCC) market average. While most international banks charge between 9-12 per cent, and GCC banks charge an average 18 per cent annually, a good number of banks in the UAE charge well above 36 per cent per annum, or 3 per cent per month — which is way too high.
One might argue that a cap will go against the spirit of free economy. However, a good economy is one which is well-regulated. None of the developed markets are unregulated. The Central Bank's vigilance and stricter regulation will help the market reshape and develop like those in the West. If the UAE wants to attract more consumers it will have to undertake these pro-consumer regulations more seriously.
The current move is a right one and banks should cooperate to bring rates down — which will eventually help them become more sustainable. No one benefits by harming consumers.
At the end of the day, the banks are there to serve customers, not make them suffer. As the banking regulator, the Central Bank will do justice to its role by ensuring that.
