An Abu Dhabi appeals court has ruled in favor of a retired Emirati who contested his bank’s loan deductions after his employment ended. The court decided that banks cannot deduct more than 30% of a retiree’s pension for loan repayments.
This ruling reverses a previous court decision supporting the bank and upholds a federal regulation aimed at safeguarding retirees from unaffordable loan payments as their income diminishes.
The court noted that the retiree had been making regular payments until his salary ceased and mandated the bank to adjust the repayment schedule according to legal limits.
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The case centered around a lease-to-own home financing agreement for a villa in Abu Dhabi’s Al Rahba area. The borrower, who secured Islamic financing in mid-2022, had kept up with payments until his job ended later that year. Once his pension replaced his salary, the bank continued to withdraw the same monthly amount, exceeding the legal deduction limit.
After the initial ruling favored the bank, the retiree appealed, claiming the deductions breached the Central Bank’s 30% cap. The appeals court concurred, emphasizing that banks must adjust repayment terms when a customer retires or experiences a significant income drop.
Legal experts highlight that this judgment has set a judicial precedent enhancing borrower rights in similar situations. “The ruling underscores that Central Bank circulars cannot override the constitution and federal law,” explained Abu Dhabi lawyer Ali Al Abbadi, who represented the retiree. “It establishes a clear precedent applicable to all loan deduction disputes.”
He noted that banks are legally obliged to adhere to court rulings and cannot continue deductions beyond approved limits. “Post-judgment, banks must comply with the court’s directive — this is the enforceable law.”
Al Abbadi clarified that the 30% cap pertains to all loan types, both Islamic and conventional. The percentage may vary with changes in the client’s income or pension. “The deduction rate is based on the current salary or pension and must adjust with income changes,” he explained. Borrowers facing excessive deductions should seek legal advice. “Legal action is the safest and most effective route if a bank exceeds the 30% threshold,” he advised.
This Abu Dhabi ruling reminds banks to ensure repayment plans remain equitable and manageable. Al Abbadi noted the decision might impact how financial institutions handle similar cases, as borrowers seek relief post-employment or retirement.
“This judgment confirms that Central Bank circulars cannot override constitutional and federal laws,” concluded Al Abbadi. “It also mandates banks to adhere to the 30% loan limit, irrespective of loan type.” The decision, issued last week, can be appealed by the bank within 30 days at the court of cessation.
Loan Deductions and Pensions in the UAE
According to Federal Decree-Law No. 14 of 2018 on the UAE Central Bank and financial institution regulations, banks must evaluate repayment ability and secure “sufficient guarantees” before loan disbursement.
This law, reinforced by Central Bank Circular No. 9 of 2022, restricts salary or pension deductions to a maximum of 30% of monthly income for loan repayment.
What if Your Bank Exceeds the Limit?
If a borrower suspects their bank is deducting more than 30% of their salary or pension, they can:
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Lodge a written complaint with the bank and the UAE Central Bank.
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If unresolved, consult a lawyer and proceed with legal action, as advised by experts.
