Why you must play your cards right

Central Bank plans to cap interest rate, but do you know how much you’re actually paying?

Image Credit: © XPRESS / Ador T. Bustamante

DUBAI: UAE customers are paying the highest credit card rates in the Gulf.

A survey by XPRESS found that banks charge an average annual percentage rate (APR) of between 29.88 per cent (2.49 per cent monthly) and 35.88 per cent (2.99 per cent monthly) on credit cards — among the highest in the Gulf.

By comparison, Saudi banks charge a monthly rate of 1.6 to 2 per cent; Qatar and Kuwait banks charge 1.5 per cent, while Bahraini banks charge 1.74 to 1.83 per cent, according to industry reports.

Concerned by the high interest rates, the UAE Central Bank last week announced that credit card rates will be capped at 18 per cent per annum, or 1.5 per cent per month, and stipulated that banks would no longer be able to raise fees after issuing a card.

The move, expected to be made official soon, would give long sought after relief to card-holders in the UAE.

Experts say that with the UAE's credit culture still in its infancy, marked by a unique expat-majority demography, many card- holders unwittingly edge towards a debt trap through misuse or paying just the bare minimum — five to 10 per cent of total outstanding.

Mathematically, following Einstein's "Rule of 72" (which determines the number of years it takes for your money to double based on compounded interest rate), a 35.88 per cent APR means that your Dh100 outstanding today, if left unpaid, will balloon to Dh341 by 2016.

Most banks that XPRESS approached declined to comment on rate curbs mooted by the monetary authority, let alone respond to specific questions such as: "Do you think rates are too high? Will you reduce your credit card rates?"

"As the Central Bank has not issued any official notification about this issue, we are unable to provide answers to your questions," an HSBC officer e-mailed XPRESS.

A Mashreq Bank spokesperson said it was "premature" for them to give a comment.


Meanwhile, despite high rates and the risk of falling into a debt trap, people are in no mood to stop swiping.

One of the reasons could be because customers here are spoilt for choice. There are 200 types of credit cards offered in the country, with 199.4 cards per 100 inhabitants in the UAE, which has the world's highest credit card penetration rate, according to UK research firm Lafferty Group.

Out of the estimated Dh24.2 billion ($6.6 billion) in outstanding credit card debt in the Gulf in 2010, the UAE accounted for nearly half, at Dh11 billion ($3 billion), Lafferty wrote in its September report. Some 3.7 million credit cards were issued in the UAE in 2010 (or nearly Dh3,000 per card).

Lured by sweeteners — free-for-life cards, loyalty points and sky-high credit limits — it's no surprise the UAE's individual consumer debt in 2010 skyrocketed four-fold from 2000.

Many swipe-happy users wind up in hyper-financial limbo. Fernando, a Filipino dodging his Dubai creditors, does not blame himself alone after maxing out eight credit cards. "I do want to pay my loans, but the lenders here are too greedy. For a Dh19,500 loan for which I had already paid Dh7,000, the lender still wants me to pay Dh25,000 more," he said.

He said court mediation did not help them arrive at a "fair" settlement. Meanwhile, he's engaged in a cat-and-mouse game with loan recovery agents.

Hassan, an Arab who's also swimming against high interest rates, said the rate cut would be a welcome break. The 34-year-old lost his Dh24,000-a-month job last year, but couldn't rein in mounting bills which included a car mortgage, Dh4,500 minimum payment for three credit cards and rent. He later found a Dh8,000 job offer by an international firm, but opted out to keep his freelance work — including weekend jaunts as a musician, in his fight to keep afloat.

Hassan now earns less than half of what he used to make and barely gets all bills covered.

But the new policy has given him hope of financial recovery.


Criticism over loose banking regulations had been ringing for years. Last year, Federal National Council member Yousuf Obaid Al Nuaimi from Ras Al Khaimah lashed out at "excessive" bank charges. In May, the Central Bank capped personal loans to 20 times a borrower's salary, set repayment period to a maximum of four years, and set the monthly instalment for loans — personal, car, credit cards — at no more than 50 per cent of a customer's salary.

Bankers, however, blame customers, saying few realise that credit cards must only be used for short-term purchases and never as a long-term debt instrument.

According to Gulfmoneymart.com, which tracks the UAE's credit card sector, UAE banks do offer perks — from 51-day to 56-day interest-free credit on purchases and loyalty points to travel insurance and roadside assistance.

Sylvia, an American, is, however, not impressed, though she is luckier than most as she pays only 22.5 APR on her credit card. She left the UAE in 2010, but her loan was secured by a blank cheque given by a guarantor (a friend) who is still in the country. Sylvia's minimum payment per month on the credit card is Dh4,500 on a credit card loan of Dh90,000. "This is crushing me. I literally have around Dh2,500 to live by every month after paying rent and other fixed expenses… [this made] me the ultimate cash cow for the bank, potentially extending hefty payments on a relatively small debt of Dh90,000 for years to come."

While the credit card quagmire brought untold misery for some, it was the flip side for "skippers" like Harry, a Briton, who moved to Dubai in 2006. During his four-year stint here, the father of two lived in a posh Springs villa and maxed out at least eight credit cards before running away in October 2010, leaving loan recovery people with an estimated Dh800,000 in outstanding debts.

Terry, a 44-year-old Filipina, earned Dh20,000 a month as financial controller for an exhibition company since 2006 and bought property in the Philippines, but quickly sold it off them when she lost her job in 2010 and heart disease struck her sister.

Today, the mother of two has maxed out all her six credit cards and has joined the ranks of those hiding from creditors. "The only way out, I'm told, is for me to go to jail so that my case will be closed and start with a clean slate," said the accounting graduate from Manila's prestigious University of Santo Tomas.

But with a post-jail civil case her UAE creditors may file, that clean bill is not guaranteed, though she hopes it would give her a chance to find work again.

Still, the fear of jail sends shivers down Terry's spine, who has been ‘floating' for over two years in Dubai waiting for her labour case against her former employee to be resolved.

"Even if I don't stay behind bars now, I still live in a virtual jail."

Terry has appealed for leniency. "I still believe good sense will prevail. My two small children count on me. I have every intention to pay my debts. I'm still young, able to work," said Terry, whose visa remains valid and who currently lives off the charity of friends.

"Jailing us would be counter-productive — it neither helps the debtor, nor the banks, nor the economy. If the high interest rates are reined in and people won't choke from re-payments, it will help everyone."

Read between the lines


Don't be deceived by "51-day interest-free payment period". In reality, payment depends on the date of purchase and how close is it to statement generation date. A statement generated every 25th of the month, means that 51-day interest-free payment only applies if you bought something using the credit card on the 26th of that month. But if you used the card on February 24 (a day before statement date), then you actually have just 20 days before the full amount must be paid without being charged interest.


While an expatriate may try to "skip" credit card debt, a bank may take action to stop him or her from leaving the country by filing a police complaint in case of default. If the expat leaves the UAE, the guarantor can be made to pay the amount due. A bank may resort to legal proceedings to issue a "Red Corner Notice" against a skipper. Certain countries have a treaty with the UAE allowing for extradition for economic offences.


  • anonymous

    Feb 9, 2012 7:28

    Cards are definitely debt traps...steer clear if you want to live a peaceful life...they are definitely not a solution by any means...most of the users are naive and don't realise the charges/terms and have nowhere to turn to when caught into legal/recovery hassles.

  • Muzaffar

    Feb 9, 2012 6:39

    I am so happy to know that at last the Central Bank has put a cap on credit card interest rates. So many people's lives have been ruined due to credit cards. I request the authorities to be lenient with people.

  • Amal

    Feb 9, 2012 5:32

    Very true. Bank sales agents here do not give proper information at all. When I applied for a personal loan from ADCB, the agent forced me to start paying back my loan after three months from the date my loan was sanctioned and eventually I was charged Dh30 per month (which is Dh1,800 for five years) extra due to late payment. When I called and raised a complaint with the bank, I was told that my loan application (which was actually filled by the agent) mentions that I had actually requested for a late payment, which was a mistake, maybe deliberatly done by the agent. In case you want to opt for an early settlement, the bank will charge you extra, which is too high. However, the best part is if you ask for a release letter, banks charge Dh50.So friends, be careful when applying for loans or while using credit cards.

  • shamsheer

    Feb 9, 2012 5:11

    Really good news! I welcome Central Bank's decision!

  • Jitendra

    Feb 9, 2012 4:44

    I don't understand why people blame credit cards. It's an add-on facility which banks provide. Now it's up to you how you use them. Most of us want to utilize the facility to full extent without thinking about the repaying factor. We cannot misuse cash, can we? No. So why not use same sense and use credit cards to the limit that you can repay on time. Most credit cards offer some cash-back facility. Use this instead of over spending on cards. Human tendency is to show-off how much money one can spend, how lavishly one can live. However, when you are unable to repay the same amount, you simply land up blaming the bank and ask for settlement!

  • krish

    Feb 9, 2012 3:47

    Few years back when I had no credit card, I was debt free and happy. However, when I started accumulating cards and was forced to use them, I realised the pain of falling into debt traps. Today, I end up paying 30-40 per cent of my monthly salary to credit cards.

  • Ram B

    Feb 9, 2012 3:47

    The highest interest rate for credit cards is not 2.99 per cent. It is already amended by various banks like FGB, Barclays etc to 3.09 per cent!

  • Jayan

    Feb 9, 2012 3:01

    I am ashamed by the way credit collection agents deal with defaulters. They use foul language even in front of other employees and literally threaten and mentally torture people. I felt like a lawless gangster when they arrived at my office to abuse a defaulter who is also a colleague of mine.Since then whenever a representative has come from that bank to our office for selling cards/ products, we have told them the story and they have been forced to return.Things need to change but we should not run away from obligations of the repaying the money with which we enjoyed ourselves.Tighten the liberal credit lending policies and bring it into international standards to help solve the issue.Thank you XPRESS for this report.

  • Shivshankar KTDubai

    Feb 9, 2012 2:47

    Credit card has become a perennial problem with everyone, despite the fact that it is sometimes very convenient as we don't have to carry cash all the time. All said and done, it's still a debt trap. Of course there are people who use it very wisely but majority falls in to this trap without even knowing.It's high time to make people aware that credit cards should be used only when it is necessary. Credit cards tempt people to spend more than what they earn. Banks are very liberal in giving higher credit limits as they know that credit cards are money making machines.The government should really help these people by monitoring the amount of credit offered to customers, especially those who fall under the low income group. There should be a control on the interest charged and it should be uniform irrespective of the bank.It's surprising to know that there are almost 200 types of cards in the market and it is very dangerous. I request everyone to use credit cards judiciously so that the outstanding can be repaid without much interest.

  • sandeep

    Feb 9, 2012 12:01

    I am very happy to learn that the Central Bank of UAE has actually put a cap on credit card interest rates. However, I still feel that card credit over-limit fees and late payment fees are too high. I suggest that the bank should put a cap on these fees too.

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Latest Comment

Cards are definitely debt traps...steer clear if you want to live a peaceful life...they are definitely not a solution by any means...most of the users are naive and don't realise the charges/terms and have nowhere to turn to when caught into legal/recovery hassles.


12 February 2012 17:42jump to comments