The Saudi Central Bank (SAMA) has issued new guidelines requiring finance companies to verify accredited valuation reports before classifying accident-damaged leased vehicles as a total economic loss. The move aims to strengthen customer protection, ensure fair treatment for all parties, and improve compliance with Saudi Arabia’s Financial Leasing Law.

SAMA Issues New Guidance on Damaged Leased Vehicles

SAMA recently circulated instructions to banks, financial institutions, and finance companies operating across Saudi Arabia regarding the handling of leased vehicles involved in accidents. The guidance emphasizes the importance of carefully reviewing and verifying reports issued by valuation firms licensed by the Saudi Authority for Accredited Valuers (Taqeem) before deciding whether a vehicle should be considered a total economic loss.

The directive is part of SAMA’s ongoing efforts to enhance transparency, protect consumers, and ensure proper implementation of financial leasing regulations in the Kingdom.

Finance Companies Must Verify Vehicle Condition

According to the circular, when a leased vehicle is damaged in an accident, the financing company must take all necessary measures and coordinate with relevant parties before making a final decision.

Rather than automatically relying on an appraisal report, finance companies must conduct thorough due diligence to determine whether the vehicle can still be safely and effectively used by the lessee.

The final assessment must be based on verified reports prepared by valuation firms accredited by Taqeem.

Why SAMA Issued the Circular

SAMA explained that the new instructions were introduced to address challenges faced by customers of financial institutions and to ensure consistent application of the Financial Leasing Law.

The Central Bank stressed that appraisal reports issued by Taqeem-licensed firms should undergo proper verification before they are used in decisions involving leased assets damaged by accidents.

Understanding Article 22 of the Financial Leasing Law

Contract Ends if the Asset Is Completely Destroyed

Article 22 of Saudi Arabia’s Financial Leasing Law states that a financial leasing contract must be terminated if the leased asset is completely destroyed and can no longer serve its intended purpose.

Options Available in Cases of Partial Damage

If a leased asset suffers damage that prevents normal use, the lessor must either:

• Restore the asset to its original condition within a reasonable timeframe, or

• Provide a similar replacement asset acceptable to the lessee.

If the lessor fails to meet either obligation, the lessee has the right to terminate the lease agreement or continue the contract under revised terms that reflect the reduced value of the damaged asset.

Rental Payments During Repair Period

When a leased asset is undergoing repairs and the lease remains active, the lessee is generally not required to pay rent during the repair period.

However, rent may still be charged if the lessor provides a replacement asset that offers equal or greater value than the original leased item.

Government Restrictions and Lease Termination

Article 22 also applies when government decisions or actions by competent authorities prevent the use of a leased asset for reasons beyond the lessee’s control.

In such situations:

• The leasing contract must be terminated.

• Rental obligations cease from the date the restriction takes effect.

Ensuring Fairness Between Lessors and Lessees

The Financial Leasing Law requires implementing regulations to clearly define the rights and obligations of both parties whenever a lease agreement is terminated before its scheduled end date.

These regulations must:

• Maintain fairness between lessors and lessees.

• Comply with Shariah principles.

• Consider any insurance compensation payable due to damage or loss of the leased asset.

Impact on Vehicle Leasing Customers in Saudi Arabia

The latest SAMA guidance strengthens consumer protection by ensuring that leased vehicles are not prematurely classified as total economic losses without proper verification. The new procedures require finance companies to carefully evaluate each case and rely on validated assessments before making decisions that could affect customers' rights and financial obligations.

This approach is expected to improve transparency in the vehicle leasing sector while ensuring fair outcomes for both leasing companies and customers across Saudi Arabia.