Question: I resigned from my job recently, and I have some outstanding loans and credit card bills. Can my bank claim these from my end-of-service settlement?
Answer:
In the UAE, personal loan agreements may include provisions that allow a lender to claim a borrower’s salary and end-of-service benefits as a form of repayment. This practice is governed by the Central Bank of the UAE, specifically under Notice No. 3692/2012, which sets forth the general terms and conditions for personal loans.
According to Article 2(1) of the Securities and Documentation section of the Personal Loan Agreements, lenders may require borrowers to ensure that their salary and end-of-service benefits are credited to the lender's bank account. This condition is often included as a guarantee to cover loan payments, interest, fees, and any other outstanding amounts.
In practical terms, this means that if you have a personal loan with a UAE bank and you resign from your job, your employer is typically required to transfer your end-of-service benefits directly to the bank. This could impact your ability to access those funds freely.
Moreover, the lender has the right to demand immediate repayment of any outstanding loan balance if it deems that an event—such as termination of employment—could jeopardize the borrower’s ability to continue repaying the loan. This is outlined in Article 4(6) of the Personal Loan Agreements, which states that if the bank believes the borrower might be unable to meet their financial obligations, all outstanding amounts could become due immediately, without prior notice or court ruling.
Therefore, if your employment ends and your end-of-service benefits are credited to the bank holding your loan, the bank may prevent you from withdrawing these funds, using them instead to settle your loan.
It's essential for borrowers to fully understand the terms of their loan agreement, especially clauses related to salary and end-of-service benefits, to avoid any unexpected financial constraints upon resignation or termination of employment.
News Source: Khaleej Times
