As more businesses and banks utilize direct debit, consumers will need to play catch-up in understanding the new system – but it may mean an end to the dreaded dozens of post-dated checks.
Tough rules have been in effect in some GCC countries with regards to the penalties associated with bouncing checks. Under some local laws, it is considered to be a criminal offence, with jail time being entirely possible pending the evidence in each case. [Related: Bouncing checks: Still a crime in the UAE?]
However, momentum is gathering for the use of a direct debit system, which would essentially remove the need for years’ worth of individual post-dated checks as collateral.
In the UAE, this transition has been slow, due to requests by a number of banks for more time to comply with the Central Bank’s mandate – the system first launched in June 2013. Only recently have big names like Emirates NBD and Emirates Islamic Bank come on board. [Related: Direct debits: Is the UAE catching up? | When will we benefit from direct debit?]
In the past, banks have been limited in their ability to assess customers’ creditworthiness. This is expected to change soon as the Al Etihad Credit Bureau (AECB) will start issuing consumer credit reports to banks next month. These will include information on debt levels, financial commitments, credit history and incidents of late payments or defaults. [Related: UAE Credit Bureau reporting from September | How to manage your credit score | Your company’s reputation counts for you]
The added transparency should help consumers and banks make more responsible decisions and avoid unnecessary risk. With such added measures, experts predict to see a lot more business with consumers making the switch in the near future. But before signing up, here’s what you need to know about how the process works.
This can be done by signing a Direct Debit Mandate form at your bank. The system allows the customer to set the instructions; funds are then taken from your account automatically by the company you are paying.
Essentially, it’s a safer and easier way to make regular payments or manage loans than manual payment each month or a standing order. It eliminates the possibility of someone simply forgetting to pay at the right time and paying late fees as a result. Customers who use direct debit can also save time they would have spent queuing at banks or payment offices. Access to payment history will come in handy if any disputes occur. [Related: What’s the difference between direct debits and standing orders?]
Other useful direct debit tips
- Ensure you have sufficient funds to pay your direct debit: Keep tabs on all of the payments that have been arranged and tied to your account. Always ensure your cashflow is in line with your bills, in addition to covering your various other monthly expenses, otherwise your direct debit will be denied – and that will become a black mark against your credit score under the new Al Etihad Credit Bureau credit reporting.
- Changing a direct debit: Making changes to authorized payments is not always simple. It might be worth it to check with your bank first to see if you can manually control electronic transactions that you have scheduled on your account.
- Canceling a direct debit payment: This may prove to be more difficult. These requests must be made in writing and in person at your respective bank branch. It can also take up to five working days for them to be processed. In order to cancel payments tied to loans or credit cards, visit the office of the lender or card issuer.
UAE banks that offer direct debit as a service
- Abu Dhabi Commercial Bank (ADCB)
- Abu Dhabi Islamic Bank (ADIB)
- Bank of Baroda
- Bank of Sharjah
- Commercial Bank of Dubai (CBD)
- Commercial Bank International (CBI)
- Doha Bank
- Dubai Islamic Bank
- Emirates NBD
- Emirates Islamic
- First Gulf Bank (FGB)
- National Bank of Fujairah (NBF)
- National Bank of Umm Al Quwain (NBQ)
- Noor Bank
- Standard Chartered
- Union National Bank