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Welcome back to Lawgical with Ludmila, where we untangle legal knots so that you do not have to. I am Ludmila Yamalova, a United States qualified lawyer based in Dubai. In each episode, we break down complex law into clear and practical insights that you can actually use. Today we are tackling a subject many fear but few fully understand, debt collection in the UAE banking sector, especially from the perspective of consumer protection.

Life Happens and Defaults Occur

Let us face it, life does not always go according to plan. Jobs are lost, salaries are cut, businesses fail, or unexpected crises strike. For many, loans, whether home mortgages, auto loans, credit cards, or personal lines of credit, are among the first obligations to feel pressure when cash flow tightens. When the borrower begins to default, the relationship shifts. They are no longer just in arrears.

They are under legal, regulatory, and reputational scrutiny. For the banking industry, recovering that debt is a priority. For consumers, it can become a battle to preserve dignity, rights, and financial stability. That is why it is crucial for borrowers, and indeed all of us, to understand how the UAE banking sector handles defaults, how the Central Bank regulates debt collection, and what protections you as a consumer can have under the law.

At the outset, one thing is clear. While debt collection is legal, harassment and intimidation are not. This is a balancing act. Law is your ally, not just a hammer.

In today’s episode, we will:

• Unpack the regulatory framework governing consumer protection in banking.
• Explain the specific rules for debt collection practices both internal and via licensed agencies.
• Share real examples of unfair or illegal practices.
• Provide a clear summary of what is allowed, what is not, and how consumers can respond.

What Debt Collection Means in Practice

Before we do that, let me provide a bit of context. What is debt collection in simple terms. You take a loan, let us make it a car loan.

That car loan is based on your ability to repay it. That ability is tied to your current job and salary. Now you lose that job. You still have other obligations to pay, your housing and other life expenses. So the car is perhaps one of the last obligations that you believe is important for you to continue or that you even have means to service.

You are not able to pay your car loan on a monthly basis. The bank obviously wants and expects to receive a monthly payment for that car loan, and its whole financial system and internal systems are based on anticipated repayment of those facilities. When you are not repaying, the bank’s red flags go out internally.

Within the banking system they feel pressure and need to figure out what is going on with you, when you are going to start repaying your obligation, or whether you are going to be able to repay at all. That is all very typical, predictable, and reasonable to expect. When you fail to pay your financial obligations, the other side will start knocking on the door and asking questions, trying to get answers. How it is done is very important for us to discuss and understand. This is the purpose of this discussion.

Until recently there were not robust regulations that legal practitioners and consumers could refer to in order to protect how they are handled or how their data is handled by financial institutions in times of distress or financial difficulties.

The Obligation Remains, but Conduct is Regulated

We need to acknowledge that the debt obligation remains. It is a contractual obligation. That obligation still has to be repaid eventually. How your inability to pay that obligation is managed by the bank or by whoever the bank engages to help recover the loan is now very specifically and expressly governed by the UAE rulebook and the UAE regulations on consumer protection.

At a high level, it is not what it used to be.

• In the past, many would attest that when they fell behind on repayment they received calls, texts, emails, knocks on the door, packages, and even calls to the office.
• These tactics were used to pressure repayment and were common. Many consumers in distress experienced similar conduct.

The point of today’s discussion is to share that there are specific regulations in place now to govern debt collection practices in the UAE.

Regulatory Foundation

A. Core Legal Instruments

There is a series of laws that govern debt collection in the UAE. Debt collection is legal because the economy depends on repayment of obligations. There are specific regulations as to how it is to be done.

1. Federal Law Number 14 of 2018

   • Governs the Central Bank and the organization of financial institutions and activities.
   • Grants the Central Bank authority to issue regulations and standards affecting licensed financial institutions.

2. Consumer Protection Regulation

   • Issued by the Central Bank under Article 121 of Federal Law Number 14 of 2018.
   • Circular Number 8 of 2020, issued at the end of 2020.
   • Sets out principles and obligations that licensed financial institutions must follow in dealings with consumers.

3. Consumer Protection Standards

   • Mandatory and enforceable in parallel with the regulation.
   • Cover disclosure and transparency, complaint handling, market conduct, data protection, and collection practices.
   • Must be read together with the regulation and other relevant rules including those on Sharia compliance where applicable.

These regulations and standards are included in the Central Bank rulebook.

B. The Rulebook

• The rulebook is extensive, about two thousand pages if printed.
• It is available on the Central Bank website in searchable, accessible form and is updated continuously.
• Specific sections such as consumer protection and debt collection are easy to find.

You will hear the terms Consumer Protection Regulation, Consumer Protection Standards, and rulebook used interchangeably. All are enveloped within the rulebook.

C. Market Conduct and Consumer Protection

Under the rulebook’s Market Conduct and Consumer Protection section:

• Articles two through fifteen cover essential consumer rights, institutional oversight, complaint resolution, financing practices, and enforcement.

Key point
A licensed financial institution must respect consumer rights, especially when default happens. Banks must act fairly and ethically even when the consumer is in default.

Context and evolution
In the past, consumers in default were treated as wrongdoers and placed on the defensive. The new regulatory reality imposes specific protocols and obligations on banks and financial institutions regarding how they must conduct themselves with consumers.

D. Scope and Goal

These frameworks establish:

• A comprehensive set of rights for consumers.
• A comprehensive set of obligations for financial institutions.
• Application to all licensed banks, finance companies, and debt collection agents operating under their authority.

The goal is simple. Banks must act fairly, transparently, and responsibly in all dealings with consumers.

Debt Collection Practices Under the Rulebook

A. Legitimacy and Constraints

The rulebook recognizes debt collection as a legitimate financial activity governed by strict consumer protection requirements similar to those that apply to all financial institutions.

Historical note
Until recently there was no specific licensing activity called debt collection. Many so called debt collectors operated without proper licensing and would have been operating illegally under current standards.

B. Dedicated Provision

Under the Consumer Protection Regulation and Standards, section 5.25 in the rulebook sets out the framework for recovering overdue debts.

C. Key Rules Banks Must Follow

1. Written Policies and Procedures

   • Banks must maintain documented, detailed debt collection protocols used to train agents and govern conduct.

2. Early Dialogue and Documentation

   • Banks must, to the extent reasonably possible, discuss financial difficulties with the consumer before moving to collection or legal proceedings.
   • These discussions must be documented.
   • If you are served with a court case without such steps, lack of documentation can evidence a breach by the bank.

3. Thirty Day Arrears

   • If an account is in arrears for thirty days after the due date, the bank must communicate with the consumer or authorized representative to understand reasons and explore repayment options.

4. Sixty Day Arrears and Formal Written Notice

   • If arrears exceed sixty days, the bank must issue a formal written notice containing:
     • The date when default began.
     • The number and amount of missed payments.
     • The interest or profit rate.
     • The fees charged.
     • A request that the consumer engage to remedy arrears.
     • Name and contact information of the bank’s collection department or authorized agent.
     • Consequences of continued nonpayment such as legal proceedings, sale of collateral, or engaging guarantors.

5. Written Breakdown Requirement

   • It is not sufficient to assert a lump sum owed.
   • The bank must provide a clear breakdown of principal, interest, penalties, and fees so the consumer can understand the total amount.

6. Monthly Updated Notices

   • If arrears persist, banks must send monthly updated notices that show:
     • Allocation of payments among interest, principal, and fees.
     • The updated balance.

7. Proportionate Communications

   • Communications must be proportionate and not excessive.
   • Permissible methods include email, SMS, phone, and mail, only through channels officially registered with the bank.

8. Prohibited Communication Conduct

   • No home or workplace visits without consent.
   • No communications outside nine in the morning to eight in the evening.
   • No unreasonable or excessive contact attempts.
   • Multiple calls in a single day relating to the same loan can be excessive.

9. Record Keeping

   • All communications in the context of debt collection must be recorded and retained for five years after settlement or write off.
   • Consumers should document their own records as well.

10. Use of Third Party Collection Agents

    • If a bank uses a third party agent, it must inform the consumer in writing of:
      • The agent’s identity.
      • The authority granted.
      • The amount authorized to collect.
    • Mortgages have additional requirements, including warnings regarding property repossession and legal proceedings.

D. Licensed Debt Collection Agencies

1. Appointment and Licensing

   • The rulebook allows banks to appoint licensed third party debt collection agencies, referenced in clause 5.25.8.
   • All such agencies must comply with the same legal standards, constraints, and obligations as banks.

2. Current Landscape

   • As of now, based on research referenced in the discussion, there is at least one licensed debt collection agency in the UAE licensed specifically as a debt collection agency, Speed Management Debt Collection known as SMDC in Abu Dhabi.
   • Other agencies such as House of Debt Collection and A to Z Debt Collection have been mentioned but not verified.
   • Consumers contacted by claimed agencies should request proof of licensing and proof of appointment by the financial institution.

3. Agency Conduct Mirrors Bank Obligations

   • Agencies act as agents of banks and must abide by bank policies and regulatory constraints.
   • Agencies do not have an independent license to behave abusively.

4. Bank Responsibilities When Engaging Agencies

   • The bank must inform the consumer in writing of the agency’s identity, scope of authority, and amount it may collect.
   • Agency interactions must comply with time limits, no unauthorized visits, no excessive calls, and no improper disclosures.

5. Data Protection and Confidentiality

   • Article 6 on protection of consumer data and assets requires strict privacy and confidentiality.
   • Agencies and banks must explain how data is processed and limit disclosures to ensure security.
   • Records of all communications must be maintained for five years.

6. Accountability

   • Complaints against an agency relate back to the bank’s complaint mechanism.
   • The bank cannot evade liability by pointing to the agency.
   • The acts of agents are imputed to the principal.

Case Example and Violations

A. Case Background

A consumer has an unpaid debt dating to 2018. The original debt was thirty thousand dirhams. Partial repayments were made and another loan was taken to cover the main loan. A debt collection agent is now pursuing repayment on behalf of the bank.

B. Observed Bank Breaches

• Failure to provide a letter summarizing the obligation, penalties, interest, and number of late payments.
• No effort to explore a plan to restructure despite the consumer’s stable employment.
• No clear explanation of the outstanding total and its components.
• No written notification of third party agency appointment or the amount authorized to collect.

C. Observed Agency Breaches

• Excessive calls, about sixty to seventy in one month, from at least six different numbers from various jurisdictions.
• Emails to the consumer’s work email despite it not being a registered channel with the bank.
• Threats including blacklisting, travel bans, and arrest warrants.
• Disclosure to the consumer’s employer, senior management, HR, and coworkers regarding the personal loan, including details of the debt.

D. Legal Implications of the Conduct

• Harassment and coercion.
• Legal threats with potential criminal law implications.
• Disclosure of confidential information.
• Breach of privacy and potential defamation.
• Violations under financial regulations, penal code, cybercrime law, and data protection law.

Institutional Training and Governance

• The regulations require that bank representatives are trained in responsible practices and are accountable.
• Financial institutions must hire appropriate personnel, provide legal training on what can and cannot be done, and ensure that third party agents abide by the same regulations.

What Is Legal and Required

• Banks must have documented debt collection policies.
• Banks must communicate with consumers in arrears, understand reasons, and offer assistance before aggressive measures.
• Notices must be timely and include full disclosure of arrears details, consequences, and contact information.
• Monthly statements must show allocation of payments, updated balance, and accrued fees or interest.
• External agencies may be used only after notifying the consumer and within defined constraints.
• Communications must be proportionate, within permitted hours, and via approved channels.
• Data confidentiality and proper handling by any agent must be ensured.
• Records must be retained for five years after settlement or write off.

What Is Prohibited

• Harassing calls outside permitted hours or at excessive frequency.
• Unauthorized visits to home or workplace.
• Disclosing debt to third parties, neighbors, or co workers.
• Failure to notify consumers of third party agents and their rights.
• Charging fees or imposing penalties not clearly disclosed in the contract and notice.
• Failing to provide detailed statements on how payments are allocated.
• Using consumer data for unauthorized purposes.
• Refusing to consider consumer hardship or refusing dialogue before legal escalation.
• Destroying or failing to maintain required records.

Bottom line
The law does not turn a consumer into a punching bag. The collection process must be regulated, fair, and transparent.

Complaints and Remedies

A. Internal Bank Complaint

• Every licensed bank must maintain a consumer complaints unit under Article 8 of the Market Conduct and Consumer Protection rules.
• Complaints can be submitted in writing or online.
• The bank must acknowledge, investigate, and respond within a prescribed time frame, typically thirty days.
• All responses must be documented and transparent.

B. Escalation to the Central Bank

• If unsatisfied with the bank’s response, consumers can escalate to the Central Bank Consumer Protection Department via the Consumer Protection Portal on the Central Bank website.
• The Central Bank can investigate breaches and issue warnings, sanctions, and financial penalties against banks or agencies.
• The complaint process is free and confidential and designed for consumers to use without lawyers.

C. Civil and Criminal Remedies

• Civil actions can be filed for defamation, breach of confidentiality, emotional distress, or financial loss caused by unlawful collection actions, with compensation sought through the civil courts.
• If a collection agent threatens violence, blackmails, or unlawfully discloses private information, remedies exist under criminal law and a police complaint can be filed for investigation and prosecution.
• Legal counsel can be retained if needed, but the aim here is to equip consumers to manage part of the process on their own.

Conclusion and Consumer Action Points

Debt collection in the banking industry does not have to be a one sided fight. The UAE regulatory framework through the Central Bank’s Consumer Protection Regulation, the Consumer Protection Standards, and the rulebook’s debt collection rules creates robust guardrails to protect consumers even as banks pursue repayment.

For consumers facing defaults:

• Monitor how your bank communicates with you.
• Insist on written notices and full disclosure.
• Do not accept behavior that violates regulatory norms.
• Document everything including calls, times, and names.
• File internal complaints.
• Escalate to the Central Bank if needed.
• Consult legal counsel if the dispute escalates.

That is all for this episode of Lawgical with Ludmila. If you found this episode useful and you like what we do, you can find more on our website, lylawyers.com. We are also on Apple Podcasts and Spotify, and for the full experience you can watch our video podcast on YouTube. Until next time, stay informed, stay safe, and keep things Lawgical.