Dubai: Defaulting on loans could turn out to be the end of the road for expatriate bank borrowers in the UAE as many banks opt to file criminal cases against loan defaulters in their efforts to put maximum pressure to recover their money.
As the law stands now, residency departments are not renewing visas of expatriates and their dependants if they are wanted by police in criminal offences. In the case of loan defaulters, it’s a double whammy as it simply blocks all possibilities of remaining employed and closes any chances of repaying the debt.
Why do banks then continue to file criminal cases against loan defaulters? Gulf News spoke to a few bankers who clarified that filing a criminal case is not the first step in a loan recovery process.
“On the first signs of a potential default, banks do not file a criminal case against customers. It is not in our interest to make anyone jobless and shut out the possibility of repayment. Most banks try to work out viable settlement options before they seek legal recourse,” said the retail banking head of a Dubai-based bank.
Wilful defaulter
Bankers insist that a criminal case is initiated when the borrower is categorised as a wilful defaulter. That happens only after a series of communications between the customer and the bank have taken place and yielded no results.
In a typical case of a single instalment default, the customer is contacted by the bank within a week to remind her/him that he/she has missed the payment. If the customer is not reachable on the contact numbers provided, attempts will be made to contact the customer for the next 30 days.
Even after a month, if the customer is not reachable and a second instalment is defaulted, the bank’s collection department will contact the references provided by the customer at the time of applying for the loan or credit cards. These references are informed about the situation and are asked to contact the customer.
“In most cases, a reasonable amount of time is given to the customer and their references to get in touch with the bank to explain their situation before any legal action is taken. The biggest mistake many customers make is that they stop communicating with banks when they have problems with repayment,” said a banker.
Criminal cases
In case of loan payment default , banks have the option to initiate civil or criminal cases against customers. In most cases, banks opt for criminal cases to prevent the defaulters from fleeing the country.
Thus, banks can’t escape the responsibility for stopping loan defaulters from renewing their residence visas and the consequences of it on the borrower.
The immigration or the police act only on criminal complaints filed by banks against their defaulting customers. Bankers say in most cases it is the last recourse wherein they file a criminal case against a defaulter.
When a criminal case is filed and an arrest warrant is issued against a loan defaulter, the police department informs the residency departments which, in turn, will not renew the residence visas of expatriates, their dependents and their employees as long as the cases are pending before the police.
Bankers contacted by Gulf News said early settlements or restructuring of loans are done based on the merits of each individual case and in many cases, banks agree to reasonable "write offs" if and when the customer deserves humanitarian considerations.
Lessons
But these allowances are at the discretion of the bank.
Banks say there has been a significant reduction in default over the last two years. Most of the defaults happened during the global recession when many people lost their jobs and left the country without paying car, personal or credit card loans.
“The lessons learnt from the crisis have made banks more cautious in lending and recovery process. Banks these days have their own collection departments, in addition they also employ external debt collectors to get their money back,” said a banker.
