Know the law: Banks can initiate action if loan instalment is not paid

I have been using a credit card for the last 10 years and my repayments were always made on time. But recently, due to a crisis within my company, my salary was reduced and I was not able to make the credit card payments as I also have another bank loan. I have defaulted on my credit card payments for the last four months and the bank/finance company has served me with a legal notice. What is the legal process to be followed here?

ANSWER

Usually, credit card services offered by bank or a finance company in the UAE fall within the purview of a personal loan. The Central Bank of the UAE has laid guidelines for banks and finance companies in the UAE regarding the terms and conditions related to financing of personal loan and credit card in the UAE. Normally banks and finance companies will collect a cheque from the person who applies for a credit card, to secure their interest.

The bank or the finance company who issue the credit card to you have the right to encash the cheque provided by you to recover their outstanding dues from you. In the event this cheque is dishonoured by your bank upon presentation, its beneficiary may initiate a criminal complaint against you, for dishonour of a cheque due to insufficient funds. Further, you will be declared wanted and the public prosecutor may either imprison you or impose a fine.

This is in accordance with Section 401 of Federal Law No. 3 of 1980 related on issuance of Penal Code which states: "Detention or a fine shall be imposed upon anyone who, in bad faith, gives a draft (cheque) without a sufficient and drawable balance or who, after giving a cheque, withdraws all or part of the balance, making the balance insufficient for settlement of the cheque, or if he orders a drawee not to cash a cheque or makes or signs the cheque in a manner that prevents it from being cashed. The same penalty shall apply to anyone who endorses a cheque in favour of another or gives him a bearer draft, knowing that there is no sufficient balance to honour the cheque or that it is not drawable."

Alternatively, the bank and finance company may also initiate civil proceedings against you before the courts of competent jurisdiction for recovery of the outstanding amount plus costs.