Credit Card Issues and Accumulating Interest: What is the Solution?

Whether you are facing an active credit card claim today, or a letter has reached you after years about a card you had long forgotten, the question is the same: is the amount demanded fully due? The direct answer is that a bank's claim is not accepted at face value merely because it has been issued. Accumulated interest and fees are subject to controls settled by the courts of the United Arab Emirates, and the right to bring a judicial claim runs for a limited period, after which the debtor may plead that it has lapsed. These rights, however, do not operate automatically. They can be lost through a simple act on your part whose effect you never intended. This is why the first point any banking litigation lawyer in Dubai will raise with you is this: do not reply to the claim before you know your legal position.

In this article we set out the general picture of credit card debt files in the UAE: why the amount swells, what the courts have settled regarding interest and fees, when a claim lapses through prescription, the mistake most people make when they first respond, and how a file is handled whether you are inside the country or abroad.

Credit Card Problems and Accumulating Interest: What Is the Solution?

Our office receives files every week that are alike in substance yet differ in stage: a client in default inside the country receiving repeated demands from his bank; another who left years ago and was taken aback by a letter about a modest card limit that had grown several times over; and a third against whom a judgment was issued without his knowledge. What they share is that the file is not decided by the figure written in the demand, but by the dates, the wording and the documents sitting in their own papers.

Which stage is your file at?

Identifying the stage comes first, because the options available differ sharply from one stage to the next, and so do the periods within which you must act.

Why does the amount grow to several times the credit limit?

The gap between what was actually spent and what is demanded today does not come from further purchases. It comes from the accumulation of finance charges, late payment fees and penalties over the years of non-payment. In time these charges become the larger part of the claim, while the principal shrinks to a small fraction of it.

That accumulation, however, is not boundless, and this is where the courts come in.

Interest and fees: what have the courts settled?

This is the most important point in credit card files, and the one least known to those who hold them. The courts of the UAE do not simply accept the statements a bank presents. They subject the indebtedness to judicial scrutiny built on settled principles, chief among them:

A bank is claiming after years: has the right lapsed by prescription?

The general rule is that the right to bring a judicial claim does not remain open indefinitely. A claim carries a time period, and if it expires without the holder of the right taking action, the debtor may plead that it has lapsed. This is what is known as extinctive prescription.

In practice the position is a good deal finer than that, for three reasons. First, the period differs according to how the debt itself is characterised, and what applies to a civil transaction does not necessarily apply to a commercial one. Second, the point at which the period starts to run is neither the date the card was issued nor the date it was last used, but another specific event in your own file. Third, and most dangerous, the period can be interrupted, and once interrupted everything that has elapsed falls away and the count begins again from zero.

The most common mistake: replying to the demand

When a demand arrives, the natural impulse is to reply at once: by denying, by explaining, by offering a partial settlement, or simply by asking for a breakdown of the amount. This is exactly where the damage occurs.

Certain forms of reply may amount to an acknowledgement of the debt, and an acknowledgement by the debtor is among the strongest acts that interrupt prescription. A short message written in good faith can wipe out whole years that had run in your favour and return the period to its starting point. The same may apply to a partial payment, however small, to a request for rescheduling, and to settlement offers not protected by reservation wording.

What matters is not the mere existence of correspondence between you and the bank, but the wording used in it. Some formulations amount to an acknowledgement and others do not, and the difference between them can be a single word.

Is there a case, a judgment or a travel ban against me?

This worries the holders of these files more than the debt itself, particularly anyone considering travel or transit through the country's airports. The honest answer is that a personal search online will not give you a reliable picture.

Some judicial information is available within limits through the electronic services, but it does not cover everything that may concern you. Execution files, travel ban decisions and criminal complaints each have their own enquiry channel, and some are accessible only to the person himself or through a duly authorised lawyer. Any reassurance built on a superficial search may be more dangerous than not knowing at all. A formal, documented enquiry is possible and can be completed remotely, but it passes through a defined channel and one preliminary step, which we explain to you on contact.

A collection agency or foreign firm has written to me: what standing does it have?

Some banks instruct collection agencies inside the country or firms abroad to pursue debtors. A letter arriving from such a party does not in itself mean that a case has been filed, that a judgment has been issued, or that the party has standing to litigate against you.

There is a fundamental difference between three matters that recipients frequently confuse: an amicable collection demand, a pending court case, and the enforcement of a judgment in another country. Each has its own conditions and entirely different consequences. Verifying the legal standing of the party writing to you is a necessary first step before any reply.

The security cheque: the element that changes the whole file

It was common practice in earlier years for banks to require a security cheque when issuing a card or granting a facility. The presence of such a cheque in your file changes the legal analysis at its foundation, because it may move the matter out of its civil framework into another with its own rules, its own periods, and its own consequences for your position on entering the country.

This is why the first question we put to anyone consulting us on a banking file is: did you give the bank a security cheque? When? And was it presented for payment? The answer can turn the outcome of the file on its head.

Periods that cannot be postponed

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