Concurrent actions to recover loans are unfair

The practice of using concurrent actions to recover loans by banks should be disallowed by Bank Negara. This practice is unfair for it unnecessarily increases the debt of the borrower.

In housing loan agreements, there is a clause which gives the banks the right to recover the debt by filing foreclosure proceedings to auction the property and also a civil suit all at the same time.

The clause goes something like “…the Bank shall thereafter have the right to exercise all or any of the remedies available whether by this Agreement or by statute or otherwise and shall be entitled to exercise such remedies concurrently, including pursuing all remedies of sale or possession pursuant to the Agreement and civil suit to recover all monies due and owing to the Bank.”

In both exercises of foreclosing the property and the civil suit, all the expenses incurred will have to be borne by the unfortunate borrower. (This is the result of another of the unfair term in the contract which makes the borrower bear all charges associated with the debt recovery).

However since the borrower’s property is charged to the bank, the bank should first attempt to recover the debt from the sale of the property before it can file a civil suit against the borrower.

Unfortunately for borrowers, case law too allows banks to take actions concurrently to recover their debts.

Therefore to protect borrowers, Bank Negara should make a ruling that banks can only proceed with a single action to recover the debt from the borrower at any one time and also propose legislation to reflect this position.