Dubai: Many UAE employees rely on their end-of-service benefits or gratuity as a financial cushion during job transitions. But did you know that UAE banks can freeze or utilise end-of-service benefits to offset outstanding loans or credit card debts?
According to legal experts who spoke to Gulf News, this practice is primarily based on the terms and conditions outlined in loan agreements rather than a specific UAE Central Bank legislation.
Raluca Gatina, partner and legal director at Elnaggar and Partners, explained that while there is no explicit law mandating this practice, the Central Bank's regulations on risk management empower banks to implement such measures.
“Loan agreements typically include clauses allowing banks to claim end-of-service benefits to cover outstanding debts,” she said.
Mohamed Elmasry, an associate at Al Suwaidi and Company Advocates and Legal Consultants, corroborated this, stating: “This practice is based on the contractual agreement between the bank and the borrower.”
He clarified that this practice of freezing the gratuity does not apply only to salary accounts, but also other accounts you may have loans on.
“This practice can apply to any account held with the bank where the loan or credit facility is established. While salary accounts are the most affected due to their role in receiving the end-of-service benefits, the bank’s right to offset liabilities against funds in any account held by the borrower with the same bank typically extends to all types of accounts,” he said.
Loan agreements typically include clauses allowing banks to claim end-of-service benefits to cover outstanding debts.
Can I ask my bank not to freeze the amount?
According to Gatina, speaking to your bank well in advance can help you explore alternatives that can make the transition period easier for you.
“Notify the bank in advance if you are planning to leave your job. This can help in negotiating a repayment plan or restructuring the loan,” she said.
Elmasry also suggested speaking with your organisation to look for ways in which you can avoid the gratuity amount being frozen.
“If permissible, workers might consider having their end-of-service benefits deposited into an account at a different bank where no loans are outstanding, or if feasible, clearing outstanding loans or credit card balances before receiving the end-of-service benefits, which can prevent the bank from freezing the gratuity,” he said.
While salary accounts are the most affected due to their role in receiving the end-of-service benefits, the bank’s right to offset liabilities against funds in any account held by the borrower with the same bank typically extends to all types of accounts.
How forward planning can help
While there is no guaranteed method to prevent this scenario, proactive financial planning and understanding the terms of the loan agreement can significantly reduce the chances of complications during job transitions.
According to Gatina, here are some steps you can take:
- Build an emergency fund to cover expenses during job search.
- Calculate your monthly income and expenses (including loan repayments).
- Consider increasing your loan payments, if possible, to reduce the outstanding balance.
- Check if refinancing your loan can lower your monthly payments.
- Inform your bank about your job change and discuss potential repayment options.
- Familiarise yourself with UAE labour laws to protect your rights.
- Start planning your job transition well in advance. Update your resume, network with industry contacts, and apply for new positions early.
