Authorities prepare for defaulters

Banks brace for a rise in credit defaults, especially by expatriates who run up large credit card bills before leaving the country.

ABU DHABI // Banks and debt-collection agencies are bracing for a rise in defaults, especially by expatriates who run up large credit card bills before leaving the country, as the worldwide economic crisis deepens. Financial institutions say they are working hard to ensure they can track down debtors wherever they are in the world. Ibrahim al Sukhi, the general manager of Al Qudra Credit Rating and Collection, a recently formed company, said he will confer with legal authorities in other countries to recover money for UAE banks.

He spoke after some banks, fearing that people would borrow beyond their means and abscond, significantly lowered the limits on customers' credit cards. "The locals will be left nothing and the foreigners will simply leave," he said. "This is an economy built on humans and if there is nobody here to maintain it, it will not maintain itself." Most Arab countries have agreements with the UAE to force expatriate debtors to pay. But that is a long process in which a debt collector must approach the Ministry of Internal Affairs, then the embassy of the expatriate's country for approval, then the foreign-affairs ministry in that country before a lawyer can be contacted to take the debtor to court.

More important, the cost of that process is often so high that it limits such collections to only the most egregious debts. Authorities are taking steps locally as well. Public prosecutors in Dubai warned yesterday that defaulters would be referred to courts as bad-cheque cases, as many local banks require a signed guarantee cheque from credit card applicants before giving them a card. Issuing a bad cheque is a misdemeanour that can result in a fine, imprisonment or both. In most cases offenders languish in prison until they repay the debts.

"However, any dud cheque case may be resolved amicably between the parties concerned. As long as the debtor pays what he owes, no penalty would be imposed according to the new law," the head of Dubai Public Prosecution's mass communication section, Tareq Ibrahim Saif, said. People who flee the country leaving credit card debt would have their names flagged at all UAE ports of entry, and would be arrested and prosecuted if they sought to re-enter the country, Mr Saif said.

Mr al Sukhi said that after 180 days of non-payment, collection companies could invoke the rules of "international collection" as supported by the Central Bank. "You have to know where the person has moved to, know their address, the laws of that particular country and then find a lawyer to enforce this and take the debtor to court." But Mr al Sukhi said until the country introduced a credit bureau to enable checks on credit histories, the problem of expatriates absconding would never be beaten.

More recently, banks have taken to slashing credit limits as a precautionary measure. Standard Chartered Bank reduced the credit limit of some card holders to Dh1,000 (US$272), while some HSBC customers found their limits cut by as much as 80 per cent without warning.