Gulf Law at Gulf News 23 August 2015



Credit report can help curtail further borrowing

Credit report is a check and balance for people with history of overborrowing and defaulting

Image Credit: Gulf News
Published: 07:00 August 23, 201502Gulf News

Dubai: Althea Martinez fought back tears as she listened to a legal consultant outline the repercussions of the financial mess she was in — no bank would lend her any more money to pay off her mounting debt.

Martinez, 50, had almost maxed out her eight credit cards and had two existing loans. She now has an outstanding Dh170,000 bank debt, without the interest.

But Martinez has never defaulted on any of her dues even if her monthly payments have reached Dh11,000 and her actual salary is Dh5,000. She fills the deficit by working part-time every month and subletting her flat.

She gets by, she said, and has done so for the past few years. But not any more.

“I can no longer afford to pay the monthly instalments. I badly need debt consolidation,” the Filipino administrative officer said. “But how?”

One look at her long list of debt accumulated over the past ten years, 10 accounts in all, makes one wonder how Martinez was able to accumulate that debt without the banks finding out about it.

Martinez, the sole breadwinner of her family, said it started with just one credit card a year after she arrived in Dubai in 2004.

“I was told it’s free for life. So I accepted it and hid it in my drawer because I had decided I would use it only in case of an emergency,” Martinez said.

Not long after, a friend who wanted to buy a laptop but didn’t have cash or a card “borrowed” her plastic money. Within the year, another credit card came. And then another, and another, until it reached a total of eight cards plus two personal loans.

Martinez said she would regularly receive calls from agents telling her a “quick cash” amount was available for her taking. At times she badly needed it, but sometimes when she didn’t need it, she would grab it with the thought of sending the money back home.

“If you have an emergency and you don’t have money, it’s OK to borrow that money they’re offering so long as you can pay them back. But if you don’t need it, you’re tempted to think of where else to spend the money,” Martinez said.

“The temptation is immense since the opportunity to have ready cash in your hands is already there,” Martinez said.

The lure of credit cards and quick cash loans often peddled on the streets or on the phone by agents who need to meet a quota and the relative ease of securing them are hard to resist for many residents like Martinez.

Burdened with a limited income but more cash outflows, they incur more debt that runs into the hundreds of thousands of dirhams, mainly due to credit cards and loans.

Currently, the UAE runs, per person, close to $95,000 (Dh348,650) as indebtedness. Almost half the UAE residents — or nearly five million people — are part of the active credit population.

Between March 2014 and March 2015, consumers in the UAE received a total of Dh1.3 trillion ($355 billion) in personal loans, data compiled by National Bank of Abu Dhabi shows. The amount of loans granted to UAE residents in the first quarter of 2015 increased by 6.5 per cent compared with 2014.

The UAE Central Bank has placed safeguards to prevent residents from piling mountains of bad debt like hundreds of residents did before the credit crunch hit pre-2008.

As per Central Bank rules, residents can borrow only up to 20 times their salary. Their repayments must not exceed 50 per cent of their monthly income.

But many residents still end up with more debt, said Joseph Bobby, a social worker with Valley of Love who helps families in debt. Over the last five years after the recession, Bobby has received at least 70 cases of families in hiding due to debt.

“When a wife says she has 10 credit cards, definitely there will be more, plus loans. In all cases, both husband and wife had police cases because they defaulted in the payments,” Bobby said.

Bobby said the cases are difficult to resolve due to the complexity of the situation. Bad debt often results in police cases, job loss, inability to earn and feed the family, much less send the kids to school. The family, even though evading authorities, is essentially imprisoned by debt.

“It’s not like the debts are Dh5,000 or Dh10,000. Most cases run from Dh400,000 to Dh500,000. Where will we get the money to help these families?” Bobby said. “Credit card debt is killing people.”

Atty Barney Almazar, a licensed UAE legal consultant and partner at Gulf Law who helps Filipinos with debt cases, said the problem mainly boils down to misinformation.

“Normally, those who have had multiple debt would not disclose to the banks the full picture of their financial obligations. Some borrowers would disclose everything but sometimes agents, who get a commission for every deal made, would coach them not to because their loans or cards would not be approved,” Almazar told Gulf News.

Incomplete disclosure of one’s credit history is a punishable offence in the UAE. But Almazar said banks rarely chase borrowers on this point. Hence, borrowers, already burdened with massive debt, get even further in debt.

The credit report — a detailed record of consumers’ debt levels, financial obligations, credit payments, history of default payments and late payments — available to lending institutions now are seen as the way to to help people from spiralling out of control with borrowing.

However, it remains to be fully implemented and made mandatory for use of lending institutions and borrowers themselves.

“Currently, when you go to a bank, the bank will accept whatever you will say or documents you present. But with the credit report, if a repeat borrower gives incomplete information, at least the bank can countercheck the claim,” Almazar said.

As with the case of Martinez, which mirrors many other residents’ plight, a credit report used by banks as a tool in making informed choices in lending money could have prevented her from falling into the debt trap.

“Using credit reports prevents indebted people from incurring further debt because it will automatically disqualify them from getting a loan. In the case of Martinez, if she had been disallowed to get into debt after the third card, her debt wouldn’t have ballooned,” Almazar said.

Martinez admitted this herself.

“I take responsibility for my actions. But if this credit rating had been applicable years ago, my borrowing would have been limited by force and I wouldn’t have been in this pit. Banks would know if borrowers are falsifying information or not completely disclosing information,” Martinez said.

“I would have forced myself to adjust my living expenses and not take on more cash-on-card debt that was too hard to resist when I am haunted by family emergencies.”

*Althea’s name has been changed to protect her identity.



1) Only take a loan when needed. Do not be tempted to take more than your required amount. “There are times when a person only needs Dh50,000 for an emergency, but then agents or the bank would say they’re entitled to Dh60,000 or Dh70,000. Say no right away as your interest will be computed on the Dh70,000 borrowed sum when in fact you do not need the extra Dh20,000,” Atty Barney Almazar, a licensed UAE legal consultant and partner at Gulf Law, said.

2) Stick to cash payments. Plastic money is easy to let go of; hard-earned cash is difficult to part with.

“If you have money in your wallet, every time you pay, you take out cash and that’s it. Once you open your wallet and finish all your cash, you know that you can’t spend on anything any more. In that case, you won’t have a problem. But when it comes to credit card, you’re just using it repeatedly without realising that by the end of the month, it will all show in your bill,” Almazar said.

3) To those who want to use credit cards, set aside the money right away so that you can fully pay for your purchase once the statement comes.

4) Plan ahead. If you fail to plan your finances, then you plan to fail in every aspect of it. Ready a contingency fund of at least three months’ worth of your income to cover you for emergencies such as job loss.

5) If you lack discipline, never ever get a credit card. Almazar said almost all cases of people in bad debt started with this thought: ‘I am only using this in case of an emergency.’ But they end up with a high-end handbag a few days later. Now is this an emergency?”




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