Find out about legal procedures if you are unable to repay the loans
Question: I work in a company based in Dubai and my job doesn’t seem too stable at the moment. I used two loans: one is personal and the other is car financing. I have about four years left before the loans are paid off. Can you please advise what legal action will be taken against me if I lose my job and am unable to repay the loans?
Response: In accordance with your enquiries, the provisions of Notice No. 3692/2012 of the Central Bank of the United Arab Emirates regarding the general conditions and texts of loan agreements drawn up and approved by the Emirates Bank Association (the “Forms of Agreements loans approved by the Central Bank of the United Arab Emirates”); Cabinet Resolution No. 33 of 2020 Amending Certain Provisions of Cabinet Resolution No. 57 of 2018 on Regulations to Federal Law No. 11 of 1992 on the Code of Civil Procedure (the “Cabinet Resolution No. 33 of 2020 “); and Cabinet Resolution No. 75 of 2021 Amending Certain Provisions of Cabinet Resolution No. 33 of 2020 on Regulations to Federal Law No. 11 of 1992 on the Code of Civil Procedure (the “Cabinet Resolution No. 75 of 2021′) are applicable.
It should be noted that in the United Arab Emirates, when a personal or car loan is granted to a borrower, the lender may collect one or more checks as security for the loan amount. This is in addition to a signed loan agreement or a signed application form which contains the terms and conditions.
Failure by an individual to pay three consecutive installments or six non-consecutive installments on the repayment of a personal loan may be considered an event of default. This is in accordance with Section 4(4) of the Personal Loan Agreement Format of Loan Agreement Formats approved by the Central Bank of the United Arab Emirates, which states: “The loan expires and all installments, interest and other fees and expenses become due and payable immediately without having to give any notification or any court order and without prejudice to any other rights of the bank under this agreement or in accordance with the law – in the event of non-payment by the ‘borrower of three consecutive installments or six non-consecutive installments of monthly payments without bank approval.
For auto loans, a person must provide an undertaking to the lender stating that in the event of default in repaying the installments, the car may be seized and auctioned off. If the auction proceeds are less than the auto loan due, the borrower will be responsible for paying the remaining balance plus all expenses, foreclosure and auction fees. This is in accordance with paragraph 4(4) of the Auto Loan Agreement Format of the UAE Central Bank Approved Loan Agreement Formats.
An individual who fails to pay three consecutive installments or six non-consecutive installments on auto loan repayments may be considered an event of default.
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Therefore, in the event of a personal loan and/or car loan default, the lender may elect to deposit your security check(s) for collection. If said security checks are denied due to insufficient funds, the lender may file a payment order against you in accordance with Cabinet Resolution 33 of 2020 and Cabinet Resolution No. 75 of 2021.
Based on the judgment in the order for payment case, the lender can initiate enforcement proceedings against you if you do not file an appeal within 15 days of the judgment.
Additionally, the lender can bring a civil action against you in court to collect the unpaid debt.
Ashish Mehta is the founder and managing partner of Ashish Mehta & Associates. He is qualified to practice law in Dubai, UK, Singapore and India. All the contact details of his office on: www.amalawyers.com. Readers can email their questions to: [email protected] or send them to Legal View, Khaleej Times, PO Box 11243, Dubai.