Dubai Court Bans Late Payment Charges by Islamic Banks and Takaful Firms

Dubai Court Bans Late Payment Charges by Islamic Banks and Takaful Firms

In a precedent-setting ruling, Dubai’s Court of Cassation has officially prohibited Islamic banks and Takaful companies from imposing any form of late payment interest or charges on clients — even in cases of deliberate payment delays.

The ruling reaffirms the core principles of Islamic Sharia law and brings long-awaited legal clarity to financial institutions operating in Dubai. The Court stated unequivocally:

“Islamic financial institutions and Takaful companies that operate fully or partially in accordance with Islamic Sharia law are not permitted to impose late interest fees — whether labeled as compensation or by any other name — on any debt or financial obligation arising from Sharia-compliant transactions or commercial contracts. This applies in cases of delayed payments, regardless of the debtor’s intent.”

This interpretation is considered a matter of public order and must be applied by Dubai’s courts automatically, even if prior case law suggested otherwise. The ruling came in response to contradictions in earlier court decisions and was referred by the head of the Court of Cassation to the General Assembly of the Court of Cassation, in accordance with Article 20 of Law No. 13 of 2016 regulating Dubai’s judicial authority.

The case now sets a unified legal precedent across Dubai’s judicial system, ensuring that Sharia-compliant institutions remain aligned with Islamic legal doctrine, which strictly prohibits riba (interest) and unjust enrichment.

For the UAE’s robust Islamic finance sector, this decision signals a reaffirmation of ethical finance principles and reinforces consumer protection in financial agreements.

Legal Insight from Al Kabban & Associates

This ruling holds significant implications for the structure of Islamic financing agreements and dispute resolution across the UAE. For businesses and individuals engaged in Sharia-compliant contracts, it is vital to review all provisions relating to penalties and late fees.

At Al Kabban & Associates, we provide expert legal guidance on financial compliance, Sharia-governed contracts, and dispute resolution in Dubai and across the UAE.

For more information or to schedule a meeting with our experienced legal team, contact us today at +971 4 453 9090 or email info@alkabban.com.

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