Easy loans have become a common sight all over the city Image Credit: © XPRESS/Pankaj Sharma

Dubai: Despite new rules to close debt traps, bank agents are still tempting cash-strapped residents to sink eyeball-deep in debt.

The phone keeps ringing off the hook with enticing offers from loan salesmen of hundreds of thousands of dirhams, never mind that the UAE Central Bank has categorically told lenders to stop cold calling residents about loans and credit cards.

Desperate to meet sales targets, telesales executives are swapping customer databases and referrals to hook people on the line, sales agents reveal.

A bank employee said each agent has to secure about 25 customers per month. Their commission is directly proportional to the number of customers or the amount of debt sold. Even one pitch can mean thousands of dirhams in commission.

"We're under pressure to meet targets; telesales may be illegal, but they're still going on," the employee said. "The bank isn't going to say ‘No, why did you bring in this customer?' It's about getting the job done - the way you do it is your business."

That includes routinely asking customers for referrals and putting promotion flyers under the windscreens of cars. However, the same enthusiasm vanishes when it comes to explaining the pitfalls of getting into debt. "I only go into that - fines or legal action - if the customer asks," one agent said.

Residents have also complained they have been ‘misled' into signing up for expensive insurance cover in the event of unemployment, accident or illness.

Newcomers easy target

"You're just coming out of a recession and looking for help. We make it look easy; it can be tempting for anyone. We are all here to make money, but for new arrivals it's especially hard to resist credit cards or cash loans. How else can you survive?"

But Filipino expat Romeo Aurelia knows the risks only too well - he was jailed for more than two months over unpaid dues. He still owes over Dh120,000 - 20 times his monthly salary.

Aurelia is left to survive on just Dh300 a month after servicing his debt - ironically called Easy Monthly Instalments (EMIs). "I've begged my bank to reschedule my loan payments, but it all fell on deaf ears," Aurelia said.

Asian Barry was offered a revised Dh400,000 loan over the phone, even though his salary had not increased. "I don't know on what basis they offered me such a high loan amount," he said. Another Indian executive who earns around Dh13,000, received a pitch of Dh200,000 in loans.

"There's hardly a day when I don't get calls and text messages from agents. At times I have got SMSes in the middle of the night urging me to take loans up to Dh250,000," said Zubair Ahmad, 35, who earns Dh8,000 per month.

Considering EMIs cannot exceed 50 per cent of a person's monthly income under the new rules on the Debt Burden Ratio (DBR), Zubair should have never got the SMS in the first place.

"We base the DBR on what's reflected on the applicant's bank statement," said a loan agent. "But if a client does not declare all his liabilities, he will be left with less than half of his salary to live on in order to pay for those undeclared loans.

"If a borrower does not declare his liabilities, he will in effect be digging his own grave."

Living off credit

In most cases, all you need to secure a loan is a minimum income of Dh8,000, a valid passport and UAE visa, a salary certificate or pay slip, a three-month bank statement, post-dated cheques and an undated "security cheque".

A blogger on an internet forum for expats wrote: "How could the banks lend so much money knowing fully well that the borrower doesn't have the capacity to repay their bills?

"There should be a public interest case lodged against banks for encouraging people to borrow absurd sums of money and enticing them into a ‘credit trap'... Someone I know was stopped at the airport, while another had his passport confiscated by the CID. Someone else cannot transfer her visa because she has a case registered against her and the overstay penalties are mounting daily."

Car loans have also been tightened, with a 20 per cent down payment now required. However, the down payments themselves can be financed as personal cash loans as a way around the rule.

Dubai-based psychologist Dr Andrea Tosato said tempted residents are living in a fantasy world, having already piled up huge sums in credit card bills alone.

"The problem is people don't think about the consequences when it's payback time," Dr Tosato said. "A credit card or a loan gives you an illusion that you ‘can' even when you ‘cannot.' It's a very dangerous mindset; I see many people who are overexposed and living off credit. Living beyond your means is a sure recipe for trouble anywhere in the world."

In the UAE, the trouble can be very serious, said Emirati lawyer Syed Al Marzouqi. "The law here is very simple: If you bounce a cheque, only two things can happen - you either pay up or go to prison," Al Marzouqi said. "Lenders use all sorts of enticements to catch you, but once you guarantee the loan with a cheque, you're hooked."

Residents in financial trouble make up 60 per cent of all cases he handles.

Another UAE lawyer, Habib Al Mulla of Al Mulla & Associates, has been quoted as saying "outdated" personal debt laws need to be changed. And Dubai Police Chief Lt Gen Dahi Khalfan Tamim has also been reported as calling for financial reforms, saying "What we have suffered is not a real-estate crisis, but a banking crisis."

Downward Spiral

If you break debt repayment rules and schedules, the loan and all accrued interest become due immediately

Banks also charge late payment fees

They can submit your "security" cheque to the police and you can face criminal charges for writing an unfunded cheque