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Post-dated cheques for repaying loans abolished

The UAE economy is moving to the Direct Debit System from October 5, when customers would advise their banks to make monthly installments to their lenders, instead of writing post-dated bank cheques for paying-back mortgages, auto loans and personal loans.

The new initiative will root-out inefficiency in the payment system, where back office staff do the posting of cheques manually. In the second phase to be started very soon, the DDP would be expanded to the payments of utility bills, insurance premiums and other payments using the system, which the bankers say “is not very capital intensive but carries a lot of rewards in the long-run.”

The system would be linked with the Credit Bureau which will track the credit history of a loan applicant. The Direct Debit System will eliminate the bounce cheques and save in costs for maintaining recovery staff.

Welcoming the service, Sudhir Kumar Shetty, chief operating officer of the UAE Exchange dispelled the impression that some back office jobs could be lost. “In fact, it would help save banks in their cost, scale-up their operations and focus on better service.” In April, the Central Bank of the UAE started the registration of the banks and finance companies to be able to utilise this electronic payment system, which is now complete. In thenear future, the adoption of the Direct Debit System will be mandated for all loans and finances being advanced by banks and finance companies.

‘’A gradual implementation approach is envisaged to achieve this, commencing with all Post Dated Cheque backed loans and finances to individuals moving onto the Direct Debit System starting October 5, 2013,” said the Central Bank of the UAE.

The facility will eliminate the need to sign several post-dated cheques for installments upon obtaining a loan/finance. Monthly installments can be claimed by the lending institutions by using the Direct Debit Request. A Direct Debit is a safe and convenient method of making payments and is ideally suited for regular payments with fixed or variable amounts electronically.An individual or corporate can set up a direct debit instruction by submitting a signed Direct Debit Authority (DDA) to the service provider.

A direct debit instruction can be setup by submitting a signed DDA to the service provider.Once a DDA has been successfully setup then the payments are made automatically by the customer’s bank from the account designated by the customer in the DDA upon receiving a request through the UAEDDS from the creditor.

A senior official from the Central Bank of UAE said: “Introduction of the Direct Debit System is yet another strategic initiative from the Central Bank. DDS will save time and effort for both clients and banks.”

— haseeb@khaleejtimes.com