The Debt Panel: 'Will my cheques bounce if the bank freezes my account when I swap jobs?'

The Dubai resident is concerned a stop on his account will affect regular payments

Illustration by Mathew Kurian 

I recently accepted a new job and understand the bank can freeze my end-of-service benefits from my last employer. I have a personal loan that I repay every month and also have monthly payments to a cleaning agency and a quarterly cheque to my landlord that are due during the transition period between the two jobs.

What will happen to these cheques when they are paid in by the bearer? If I keep sufficient funds in my account, will my bank freeze that amount too as well as the gratuity payment?

My debts are: outstanding balance / monthly payment

Personal loan: Dh120,000 (Dh6,133)

Car loan: Dh110,000 (Dh2,273)

Credit card: Dh10,000 (I have two personal payment plans on the card – Dh550 until September 2020 and Dh650 until March 2021)

Total: Dh240,000 (Dh9,606)

I borrowed the money to consolidate previous liabilities and to pay back relatives for some money I borrowed to cover some medical bills.

The last date with my current employer will be April 21 and I will start my new role on May 4. I am financially ready for the bank to freeze my gratuity until I provide them with the new paperwork, but I need to ensure I don't face issues with the cheques.

I earn Dh33,000 a month and expect my end-of-service payment to be around Dh25,000 (Dh15,000 for the gratuity and Dh10,000 in leave I have not taken). Could I ask my current employer to pay my last salary and the gratuity separately? I could then withdraw my salary to avoid the freeze on my salary. I can cover the cheques without using the gratuity as long as the bank does not freeze my entire account. 

My monthly expenses come to about Dh21,000 and include Dh8,300 for rent, Dh2,500 for a live-in nanny from an agency, Dh1,500 for utilities, Dh3,500 for groceries, Dh4,000 for general expenses and Dh1,200 for car expenses. In addition, I also pay around Dh10,000 per year for my kids' education as my employer covers up to Dh60,000 per year. 

I am from Tunisia and live in Dubai. How do I get around this bank freezing issue? AG, Dubai

Debt panellist 1: R Sivaram, executive vice president, head of retail banking products, Emirates NBD

You are right about the action taken by banks when they receive end-of-service benefits for customers with an outstanding loan. Often as a precautionary measure, UAE banks place a lien on such customers’ bank accounts because banking guidelines mandate lending only to individuals with a valid employment visa and earning a minimum salary. As such, banks need to confirm these conditions will continue to be met when the customer resigns from a job.

My advice is to communicate your situation with your bank proactively and in advance. Share documentary evidence of your new employment and agreed salary. If possible, ask your new employer to provide a salary transfer letter that you can give to your bank. The letter will help validate that the salary from your new employer will continue to be credited into your existing bank account. In your communications with the bank, mention that you intend to service the remaining instalments of your loan diligently and that you remain fully committed to clearing outstanding dues.

Debt panellist 2: Ambareen Musa, founder and chief executive of Souqalmal.com

Banks in the UAE reserve the right to freeze the funds in a customer's salary-linked account once their end-of-service benefits are credited to the account. The final salary and gratuity credit would only trigger the bank to do so, if the customer has outstanding debts with it. This is a precautionary measure undertaken to ensure a customer does not default on his/her loans with the bank.

The terms and conditions set out by banks give them the right to freeze, suspend or put on hold the funds in a customer's account, as well as the right to set off these funds towards outstanding liabilities with the bank in a number of circumstances. These include non-payment of three consecutive or six non-consecutive instalments, suspicion around the borrower leaving the UAE permanently, and the gratuity being credited into the bank account signalling an end or termination of employment.

Many borrowers are unaware of the terms and conditions in their personal loan contracts, which give the bank complete authority to adjust the gratuity payment towards their outstanding loan with the bank.

It is standard protocol for employers in the UAE to release the final salary and gratuity (along with other end of employment benefits) all together. Therefore, asking your employer to split the payment may not work.

Your best option is to inform your bank in advance and provide them with details and proof of your new employment, such as a copy of the official offer letter. If you haven't missed or delayed any loan instalments in the past, your repayment record should help you negotiate more effectively.

If your account is blocked, give the bank an official salary transfer letter from the new employer along with your new employment visa and Emirates ID copy. To avoid facing a cash crunch while you figure this out with the bank, set some cash aside for the time being. Having another current or savings account, separate from your salary account, would help you avoid the hassle of being stranded without access to your primary account.

Debt panellist 3: Keren Bobker, an independent financial adviser with Holborn Assets

If you have an outstanding debt, whether a personal loan or a credit card balance, it is standard practice for banks in the UAE to freeze an account when advised by an employer that a payment is "final salary" and employers are supposed to do that.

Therefore, expect your account to be frozen when the payment is received as you have outstanding debts. When an account is frozen there is no access to any money in it and it cannot be partially frozen so there is no getting around it. The gratuity should be paid at the same time as the last salary payment. As you know this is going to happen, it would be wise to withdraw cash for interim expenses.

Note that not only will the account be frozen, you will also not be able to make any withdrawals or pay out any money. Depending on your lender, you may find that the gratuity payment is offset against the outstanding debt.

However, if the banks are aware you are starting a new job soon and have sight of an offer letter with the salary shown, there should be less chance of the gratuity being taken to pay down your debts. Some banks will not unfreeze accounts until they are given a new residency visa copy and a salary payment has been made.

As for the two cheques due to be paid while your account is frozen, contact both parties to explain the situation as neither the payment or the cheque will be honoured. You will need to come to an agreement with both parties either to pay early or for them to wait until your account is unfrozen. Let them know as soon as possible as people are often far more amenable about such matters if they are given plenty of notice.

The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to [e-mail]