Mahreq Bank, infamous for its incompetent customer service, has now placed its customers in steamy waters.
According to The National, a group of Mashreqbank customers wants the Government to investigate a change in how the bank determines their interest rate that they say has raised the monthly payments by as much as 30 per cent.
In a letter they plan to send to the Central Bank today, 64 customers will demand a meeting with officials to present their claim that Mashreq violated terms of variable rate mortgage agreements when it switched its base for calculating its charge from the Emirates interbank offered rate (Eibor) to an internally set one.
One Mashreq customer said the bank’s move raised the spectre of even more defaults as customers being asked to pay more were pushed to the brink. Many customers fear jail if they fail to pay their mortgages in full, while they also worry that paying additional charges would amount to acceptance of Mashreq’s new terms.
The letter is the latest development in a dispute that highlights tensions arising between banks and their customers as a result of the financial downturn and Dubai’s flagging property market.
Banks have raised fees and interest rates on everything from credit cards to personal loans during the past year as credit markets tightened and loan defaults rose. Until the Mashreq dispute, however, no bank had faced an organised and public consumer revolt.
The dispute began after Mashreq sent a letter to customers in November saying it would abandon Eibor starting this month.
Eibor had been on a decline in part due to government measures to reduce rates and stimulate lending in the wake of the financial crisis. Mashreq argued that the rate no longer reflected its overall cost of funding, necessitating the switch.
The six-month Eibor stands at 2.2 per cent, down from 4.7 per cent in November of 2008.
Many customers’ mortgages were calculated at Eibor plus 3 percentage points, meaning they would be paying about 5.2 per cent. The customers were moved to the Mashreq Prime Rate plus 1 per cent, or about 7.5 per cent.