Resolution Of Banking And Loan Disputes In The United Arab Emirates – IT and Internet

Article Insights

Introduction

Federal Decree-Law No. 6 of 2025 provides a new legal framework for the UAE financial sector. It places banking, insurance, payment services, and related financial activities under the supervision of the Central Bank. The law is significant to bank disputes in the UAE as it increases regulatory duties, consumer protection, supervision, and penalties.

Article 170 of Federal Decree Law No. 6 of 2025 criminalizes unlicensed financial activities, and the perpetrators could be imprisoned and fined up to AED 500 million. Furthermore, Article 168(1)(s) states that the promotion or carrying out of unlicensed financial activities shall be subject to a minimum administrative fine of AED 1 million. In addition, Article 54 of the 2025 Banking Law acknowledges Central Bank-issued digital currency as a legal tender. Law provides the statutory order for paying off debts and obligations under Article 144 of Federal Decree-Law No. 6 of 2025, when the Central Bank puts a licensed financial institution into resolution and liquidation, starting with secured creditors and ending with shareholders. Certain Central Bank decisions may be challenged before the Grievances and Appeals Committee, and the Committee’s decisions may be challenged before the Federal Supreme Court within twenty working days, where permitted under the law.

Consumer Protection in Loan Recovery Claims

Under the 2025 Banking Law, Article 150 introduces an important consumer protection safeguard for credit facilities granted to natural persons and sole proprietorships. Licensed financial institutions must obtain and maintain adequate guarantees for such facilities, in proportion to the client’s income, any existing guarantees, and the size of the requested facility, as determined by the Central Bank. If the institution fails to obtain or maintain these required guarantees, any claim, action, or defense brought by the institution in relation to that credit facility may be rejected before the competent judicial authorities or arbitral tribunals. The Central Bank may also impose administrative and financial sanctions for breach of this obligation under Article 168.

An issue that may arise in a UAE loan dispute is whether the licensed financial institution obtained and maintained adequate security for the credit facility. Recognized forms of security may include salary assignment, insurance of the loan, post-dated cheques, or other accepted guarantees, depending on the nature of the facility and the Central Bank’s requirements. However, breaches of lending guidelines, technical or prudential, such as in relation to loan-to-income ratios, may not automatically render a recovery claim inadmissible. Depending on the facts, such breaches may instead be dealt with as regulatory issues, which may attract administrative penalties.

Statutory Controls on Interest in UAE Financial Disputes

Interest calculations are monitored closely so as not to accumulate excessive debt. The most significant limitation is the prohibition of compound interest, i.e., interest levied on accrued interest. Pursuant to Article 148(11) of Federal Decree-Law No. 6 of 2025, accredited financial institutions shall not charge interest on interest accrued on facilities provided to consumers. This is supported by Article 88 of Federal Decree-Law No. 50 of 2022, the Commercial Transactions Law, which prohibits the creditor from claiming compound interest or resorting to it as a form of supplemental compensation.

UAE law allows simple interest rather than compound interest. The creditor shall be entitled to interest on the commercial loan at the rate agreed upon in the contract pursuant to Article 72 of Federal Decree-Law No. 50 of 2022 on Commercial Transactions. Where no rate of interest has been specified, interest shall be payable on the contract at the prevailing market rate at the time of dealing, provided that this shall not exceed 9% per annum until the date of full settlement. Where a contract provides for an interest rate, the debtor shall be liable to pay interest on any arrears at the rate stipulated in the contract until the debt is fully paid (Article 73).

Islamic financial institutions are subject to specific statutory restrictions on interest or benefit, particularly in relation to borrowing, lending, and delayed debt. Article 473 of Federal Decree-Law No. 50 of 2022 prohibits the charging of interest or benefit on delayed debt, including delay interest, even if it is called compensation, and also prohibits Islamic financial institutions from borrowing or lending with interest or benefit. Such an agreement shall be deemed null and void. Thus, late-payment interest clauses in Islamic finance contracts might be considered as unenforceable.

Debt Recovery Mechanisms and Executive Instruments

In respect of debts that are clearly recorded in writing and payable, the UAE Civil Procedure Law promulgated under Federal Decree-Law No. 42 of 2022 has introduced a fast-track mechanism known as a payment order, which is regulated by Articles 143 – 150 of the Civil Procedure Law. In order to qualify as a claim, a claim must be supported by written evidence, be due at the time of the claim, and concern a fixed amount of money or a movable property of a known type and quantity.

According to Article 144 of Federal Decree-Law No. 42 of 2022, the creditor must notify the debtor in writing, giving him a period of no less than five days to pay, before submitting the payment order petition. The petition may be made electronically or in writing, which shall be attached to the debt instrument and proof of notice. If accepted, a payment order should be issued within three working days from the date of submission. But the dishonored cheque is treated separately. A cheque dishonored for want of funds may be considered as an executive instrument under the Commercial Transactions Law.

A cheque which is marked by the bank as having no or insufficient funds shall constitute a writ of execution pursuant to Articles 648(2) and 667 of Federal Decree-Law No. 50 of 2022. The bearer shall be entitled to proceed through enforcement procedures without having to file a petition for a payment order first. If part of the cheque amount is available, the bank must make a partial payment unless the bearer refuses. It must note this on the cheque and give a certificate of payment for the balance.

Personal Guarantees and Limits of Accessory Liability

Guarantees are limited by civil law. The new Civil Transactions Law (Federal Decree-Law No. 25 of 2025) will come into force on 1 June 2026 and will restrict guarantees. According to Article 1009, before a creditor may proceed against the guarantor, he must first proceed against the principal debtor. It also forbids the execution on the property of the guarantor prior to the exhaustion of the property of the debtor, except in the case of the guarantor being equally and severally liable with the debtor or as otherwise provided by law or contract. The guarantor then has to go to court to get these protections.

An important time limit for guarantee claims is established by Article 1006 of Federal Decree-Law No. 25 of 2025. The guarantor’s obligation shall be deemed to be extinguished if the creditor does not bring an action before a court for the recovery of the debt from the debtor and the guarantor within six months from the day following the date on which the debt falls due. Consequently, if the creditor does not take court proceedings within this period, the guarantor may rely on Article 1006 and argue that the guarantee obligation has been discharged.

Alternative Dispute Resolution via the Sanadak Ombudsman Framework

Sanadak is the UAE’s independent financial and insurance ombudsman unit, established under the regulatory framework of the Central Bank to assist in resolving complaints involving licensed financial institutions and insurance companies. It deals with complaints from consumers, sole traders, and small to medium businesses, including complaints about bank accounts, credit cards, personal loans, insurance claims, and other financial services.

The complainant shall file a formal complaint with the licensed financial institution or insurance company concerned before referring the complaint to Sanadak. If no written response is received within 15 calendar days or if the complainant is not satisfied with the response, the complaint may be referred to Sanadak. The complaint generally must be filed within three years of the relevant conduct or within two years of the time the consumer became aware of the relevant conduct, whichever is longer.

For complaints against licensed financial institutions, complainants may still proceed directly to court. For insurance complaints, Sanadak’s guidance states that the complainant must first complain to Sanadak rather than filing directly before the courts. If a complainant is dissatisfied with Sanadak’s decision, the matter may be escalated to the Appeals Committee for licensed financial institutions or, for insurance matters, to the Insurance Dispute Resolution Committee. An appeal fee may apply, including an AED 500 appeal fee for Sanadak appeals, which may be refunded if the decision is made in favor of the appellant.

Conclusion

The UAE’s approach in the field of banking and loan disputes demonstrates a definite tendency towards tighter regulation, quick enforcement, and more protection for consumers, borrowers, lenders, and sureties. The Federal Decree Law No. 6 of 2025 raises the supervisory status of the Central Bank. The Commercial Transactions Law and Civil Procedure Law offer effective tools for interest regulation, payment orders, cheque enforcement, and debt recovery.

At the same time, the new Civil Transactions Law provides important safeguards for guarantors, in particular with regard to prior recourse against the debtor, exhaustion of the debtor’s assets, and timely action in court. Sanadak also offers an alternative path for banking, loan, and insurance complaints (for eligible complaints) to assist parties in resolving disputes prior to the initiation of formal litigation.

In general, banking and loan disputes resolution in the UAE requires close attention to facility documents, guarantees, interest calculations, cheque instruments, enforcement procedures and complaint mechanisms available. The legally sustainable way is dependent on the substance of the claim and strict adherence to the applicable statutory procedure.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

[View Source]