UAE Banks Face Restrictions on Seizing End-of-Service Gratuity for Personal Loans

UAE lenders may freeze or use an employee's end-of-service gratuity to recover outstanding debts upon contract termination, but legal experts cited by Gulf News noted that strict limits apply under loan agreements and UAE Central Bank regulations.

Ahmed Odeh, managing partner at MIO & Partners, stated that while personal loan contracts often require salary and end-of-service benefits to be transferred to the lending institution, holding gratuity as a precaution and seizing it for debt recovery are separate legal actions. Borrowers who maintain punctual repayments may possess valid grounds to demand the release of withheld funds.

Odeh highlighted that Central Bank regulations prohibit banks from freezing any amount beyond the borrower's total outstanding debt. In addition, lenders are prohibited from freezing gratuity payments to clear residential mortgage facilities. Affected borrowers who face unauthorised deductions can request full loan statements, contest the hold with the bank, or escalate disputes to Sanadak, the UAE's independent banking complaints body, or the judicial courts.

Praise Olawanle, trainee solicitor at Stephenson Harwood Middle East LLP, explained that UAE Labour Law does not grant commercial banks an automatic entitlement to an employee's severance pay. Olawanle further cautioned that companies bear no legal responsibility to forward gratuity payouts directly to lenders unless bound by an express written undertaking, warning that unauthorized transfers may trigger formal labour complaints under statutory deduction limits.