Changing jobs in the UAE? Your bank may use your gratuity to clear your debts – here’s how to stop it

Dubai: If you’re changing jobs, your gratuity or end-of-service benefits provide a reassuring cushion during the transition period. But if you have outstanding loans or credit card debts with your bank, it’s important for you to know that the bank can use or freeze your gratuity to offset the outstanding amount. We break down why some banks may do this, how to stop your end-of-service benefits from being used towards your debts, and share practical advice via our legal expert. Is the practice of freezing gratuity or using it towards debts legal? While there is no explicit legislation by the UAE Central Bank, regarding this issue, the practice is considered legal in the UAE, and is typically based on previously agreed-upon contracts between the bank and its customer. Loan agreements, in particular, may carry clauses that allow banks to claim gratuity benefits to cover any outstanding debts. Awatif Al Khouri, senior Emirati advocate and founder of Awatif Mohammad Shoqi Advocates and Legal Consultancy, explained: “Banks in the UAE may freeze end-of-service benefits to recover outstanding personal loans or credit card liabilities, subject to the applicable contractual terms and regulatory requirements. Under the UAE Central Bank's Consumer Protection Standards, banks may block funds to recover amounts owed under credit facilities or unpaid fees.” There are two important restrictions that banks face when they do this, however. Awatif explained that banks are mandated to ensure the following: The amount blocked must not exceed the customer's actual outstanding liability. Banks are prohibited from blocking end-of-service benefits for repayment of mortgage loans. Can banks freeze or restrict funds from any type of bank account? It doesn’t matter which type of account you have, with your bank. Banks may restrict funds held in salary, savings, or current accounts, provided the restriction falls within the grounds permitted by the UAE Central Bank's Consumer Protection Standards, according to Awatif. She added: “However, the bank's ability to deduct or offset these funds may depend on the account terms, loan agreement and applicable law. A salary account is not automatically exempt from such restrictions.” What can employees who are transitioning between jobs, or leaving their jobs, do to protect their gratuity? Proactive financial planning, and having a clear understanding of your loan agreement, is the best way to avoid financial issues. If it’s feasible, clearing any outstanding loans or credit card balances before your gratuity is deposited can help prevent banks from freezing your end-of-service benefits. But if this option is not available to you, then keeping your bank informed about your employment situation well in advance, is vital. Awatif said: “Employees may consider informing their bank before changing employment and discussing how outstanding loan repayments will be managed during the transition.” She said the bank may request revised repayment arrangements or alternative payment options where necessary, “but employees should first review their loan agreements and salary-transfer obligations. The Central Bank's Consumer Protection Standards require banks to give reasonable consideration to alternative repayment arrangements for customers experiencing financial difficulties.” Refinancing your loan, for instance, may allow you to make lower monthly payments. Or increasing your loan payments – if feasible – could reduce the outstanding balance. By discussing options with your bank, you can come to a resolution that works for both parties. If, however, you feel the bank is being unfair in the matter, you may have to escalate the issue to the authorities. Awatif advised: “Where a customer believes that funds have been improperly withheld, they may first raise a formal complaint with the bank and subsequently approach Sanadak, the UAE's independent banking and insurance complaints resolution unit, if the matter remains unresolved.” You can raise a complaint with Sanadak at sanadak.gov.ae.