The Abu Dhabi Commercial Court has dismissed a lawsuit filed by a bank against a customer who defaulted on 2 credit cards worth Dh489,840 in a big ruling that reinforces the responsibility of the UAE Central Bank. However, the decision came after finding that the bank had breached lending regulations by extending excessive credit beyond the income limit of the borrower.
According to Emarat Al Youm, the decision serves as a strong reminder to financial institutions in the United Arab Emirates (UAE) about the importance of adhering to the regulatory framework when granting credit facilities.
Abu Dhabi Commercial Court Rules in Favour of Borrower for Credit Card Dispute
According to court documents, the customer had multiple financial obligations. They include two credit cards with a combined limit exceeding 20 times his monthly salary of Dh16,862. However, the court concluded that the bank had violated the UAE Central Bank, which restricts personal loans and credit facilities to a maximum of 20 times on monthly income of an individual.
In addition, the bank was found to have failed to provide sufficient guarantees or post-dated cheques, which are required safeguards when extending large amounts of credit. Hence, the court has dismissed the claim of the bank for the Dh 489,840 credit card debt by deeming ur inadmissible due to these lapses.
Murabaha Loan Recovery Allowed
Indeed, the court has rejected the attempt of bank to recover the unpaid credit balances. However, it has ruled in favour of regarding a separate Islamic financing (Murabaha) loan. Hence, the customer was ordered to pay Dh316,997 for the outstanding Murabaha amount, along with an additional Dh1,000 in compensation for delayed payment. Plus, the court clarified that Islamic financing facilities are recoverable under the UAE law when properly documented and regulated.
Emphasis on Responsible Lending
The court highlighted that banks and financial institutions are required to act responsibly when extending credit to customers in its verdict. Moreover, the judgment highlighted that the bank’s own evidence confirmed insufficient guarantees and a lack of adherence to regulatory lending caps.
The ruling stated that the bank had extended credit irresponsibly to prioritise business interests over compliance with the Central Bank directive to protect customers and the financial system.
Moreover, legal experts noted that this case shows the firm stance of the judiciary on boosting financial discipline and promoting responsible banking methods across the UAE.
UAE Central Bank’s Lending Guidelines
The Central Bank has long highlighted the need for wisdom in customer lending to prevent over-indebted. Below are the top of those guidelines:
- Personal loans should not exceed 20 times the borrower’s monthly salary.
- Banks must obtain adequate guarantees, such as post-dated cheques or salary transfers.
- Institutions are required to assess the borrower’s repayment capacity before approving credit.
Violating these rules exposes banks to legal risks. In addition, it also weakens customer trust and market stability. However, the recent court ruling serves as a landmark example to reinforce the dedication of the Central Bank to maintain financial integrity in the country.
Financial Awareness for UAE Residents
This judgment highlighted the importance of understanding the rights and responsibilities of the UAE residents when borrowing loans or credit card. However, they are motivated to follow the following rules:
- You should review loan terms carefully.
- It would be best to avoid taking credit beyond their repayment ability.
- You should ensure that all loan agreements comply with UAE banking regulations.
The decision of the Abu Dhabi Commercial Court highlights the balance between customer protection and financial accountability. Moreover, the ruling promotes a more sustainable financial environment by holding banks accountable to the UAE central bank guidelines.
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