Islamic financial institutions in Dubai prohibited from imposing late payment fees
In a significant move aimed at maintaining consistency and resolving contradictions in court decisions, the Court of Cassation in Dubai has issued a binding ruling that prohibits Islamic banks and Takaful companies from charging interest or fees for delayed payments.
The unified interpretation, which will apply to all Islamic financial institutions and Takaful companies in Dubai, was requested by the head of the Court of Cassation in accordance with Article 20 of Law No. 13 of 2016, which governs the judicial authority in the Emirate of Dubai.
The ruling states that this principle should be applied by the court independently, even if prior rulings suggest otherwise. It also specifies that the unified interpretation will be binding and must be followed by all courts in Dubai.
The matter was referred to the General Assembly of the Court of Cassation for a unified interpretation, with the aim of resolving contradictions in earlier court decisions about whether Islamic financial institutions could lawfully charge late payment penalties as compensation.
The ruling will clarify the legal status of late payment penalties in Islamic financial transactions in Dubai, providing much-needed clarity for Islamic banks and Takaful companies operating in the Emirate.
It is important to note that Islamic banking regulations in Dubai, like other parts of the UAE, are subject to Shariah governance rules. The UAE Central Bank enforces these rules, ensuring compliance and transparency in the banking sector.
In general, Islamic banks aim to avoid charging interest or conventional late fees. Instead, they might charge administrative fees or donations for late payments, as seen in some credit card agreements. However, the specific rules regarding late payment fees for Islamic banks and Takaful companies in Dubai, as stated in the binding ruling by the Court of Cassation, are not detailed in the provided search results.
This action by the Court of Cassation is expected to help ensure that Islamic financial institutions in Dubai comply with the prohibition on charging interest or fees for delayed payments, contributing to the public order and maintaining the integrity of the financial sector in Dubai.
The binding ruling issued by the Court of Cassation in Dubai, following a unified interpretation request, clarifies that Islamic financial institutions and Takaful companies cannot charge interest or fees for delayed payments, thereby shaping the legal landscape of Islamic financing in Dubai. This decision, based on Article 20 of Law No. 13 of 2016, aims to eradicate ambiguities in earlier court decisions and uphold Shariah governance principles in the Dubai financial sector, fostering transparency and public order.
