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Abu Dhabi court rules in favour of retiree in loan dispute with bank
The ruling serves as a reminder that banks are responsible for ensuring repayment plans remain fair and affordable
An Abu Dhabi appeals court has sided with a retired Emirati who challenged his bank over loan deductions that continued after he left his job, ruling that lenders cannot take more than 30 per cent of a retiree’s pension to recover outstanding payments.
The verdict overturns an earlier decision in favour of the bank and reinforces a federal rule designed to protect borrowers who can no longer afford their monthly instalments once their income drops in retirement.
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The court found that the man had been making his payments regularly until his salary stopped and ordered the bank to reschedule the remaining amount in line with the limit set by law.
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The case involved a lease-to-own home-financing agreement for a villa in Abu Dhabi’s Al Rahba area. The borrower, who had obtained the Islamic financing in mid-2022, kept up with his instalments until his employment ended later that year. When his income was replaced by a pension, the bank continued deducting the same monthly amount directly from his account — exceeding the proportion allowed under national banking rules.
After the lower court initially ruled in favour of the bank, the man appealed, arguing that the deductions violated the Central Bank’s 30 per cent cap. The appeals court agreed, stating that banks must adjust repayment schedules when a customer retires or faces a significant drop in income.
According to legal experts, the judgment is now considered a judicial precedent that strengthens borrowers’ rights across similar cases. “The ruling confirms that Central Bank circulars cannot override the constitution and federal law,” said Abu Dhabi lawyer Ali Al Abbadi, who represented the case. “It establishes a clear precedent that can be relied on in all disputes involving loan deductions.”
He added that once a court ruling is issued, banks are legally bound to comply and cannot continue deductions in excess of the approved limit. “After such a judgment, banks must follow the court’s decision — that is the correct and enforceable law.”
The lawyer clarified that the 30 per cent cap applies to all types of loans, whether Islamic or conventional. However, the exact percentage may vary if the client’s income or pension changes. “The deduction rate is calculated based on the person’s current salary or pension amount — it must be adjusted whenever income changes,” he explained. He also advised borrowers who find their bank exceeding the legal limit to take formal legal action through a lawyer or law firm. “If a bank goes beyond the 30 per cent threshold, the proper step is to pursue legal proceedings — this is the safest and most effective route,” he explained.
The Abu Dhabi ruling also serves as a reminder that banks are responsible for ensuring repayment plans remain fair and affordable. Al Abbadi said this decision is likely to influence how financial institutions handle similar cases, as more borrowers seek relief after job loss or retirement.
“The ruling confirms that Central Bank circulars cannot override the constitution and federal law,” Al Abbadi concluded. “It also confirms that banks must comply with the 30 per cent limit for all types of loans — whether Islamic or conventional.” The verdict, which was issued last week, is subject to further appeal by the bank within 30 days since it was issued at the court of cessation.
Loan deductions and pensions in the UAE
According to Federal Decree-Law No. 14 of 2018 concerning the UAE Central Bank and the regulation of financial institutions, banks must assess repayment capacity and ensure “sufficient guarantees” before granting loans.
The same law — reinforced by Central Bank Circular No. 9 of 2022 — limits deductions from an individual’s salary or pension to no more than 30 per cent of monthly income for loan repayments.
What if your bank exceeds limit?
Borrowers who believe their bank is deducting more than 30 per cent of their pension or salary can:
File a written complaint directly with the bank and the UAE Central Bank.
If unresolved, consult a lawyer and initiate legal proceedings, as advised by the expert.
Haneen Dajani
Haneen Dajani is special correspondent in Abu Dhabi with over 15 years of reporting experience. She’s also a passionate athlete, full Ironman finisher, and mountaineer who loves to embark on unusual challenges.
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