Stick to new borrowing guidelines

Bank Negara should not loosen its new car loan guidelines as suggested by the Proton Edar Dealers Association of Malaysia (Pedar).

According to news reports,  Peda claims that  members’ income have been affected because with the new guidelines, only 30%  of the potential car buyers  have managed to secure  hire-purchase loans.

However there are good reasons why the guidelines are needed and must continue to be implemented.

Firstly, the Malaysian household debt service ratio reached 47.8% in 2010. This means that on average almost half of a household’s income goes to repaying debts. Thus after paying off the debt there is not much left to spend on food, transport, education, and for emergencies. Should the breadwinner fall sick or lose his job, the family will find it hard to make ends meet and loans may be defaulted.

Secondly, after housing loans, car loans constitute the next largest category of the household debt.

Lastly, the Insolvency Department announced last year that an average of 41 people were declared bankrupt every day and that the biggest cause of bankruptcy (26%) was hire- purchase loans.

Therefore the guideline must stay in place to so that ordinary Malaysians are not burdened with loans that consume a large part of their income. There are also social consequences on families having high household debts. They can lead to stress, depression, mental problem, suicides and may cause family break-ups

Letter to the Editor – 23 February 2012

How hire-purchase amendments protect consumers

alt

 

The Ministry of Domestic Trade, Cooperatives and Consumer Affairs should continue to protect consumers by strictly enforcing the Hire-Purchase Act 1967 (HPA) and the recent amendments which came into effect on 15 June 2011.

Those in the motor business are complaining that their sales are down by 20-30% and they attribute it to the amendments though they also acknowledge that the amendments do protect consumers.

Yet at the same time the Malaysian Automotive Association predicts that the sales of automobiles in Malaysia are expected to reach a new record this year despite the disruption in supply following the earthquake in Japan and delays to vehicle registrations due to the HPA. (The Star 19.07.11)

Many motor traders had adopted unfair and even illegal practices to boost sales to meet ever increasing targets and increasing profits. The amendments became necessary to curb these practices in order to protect consumer interests.

The so-called ‘drop’ in sales in not actually a drop. Formerly vehicles were sold when they were not even ready for delivery. This was done by getting consumers to sign blank documents and pay deposits. This created many problems for consumers, e.g cars not delivered on promised dates; cars registered without first being seen by purchasers; chosen colour not available, so take another colour or wait longer; cars that had been driven and thus not brand new.

Now the dealers are required to have the cars ready for delivery before signing agreements for their sale. Thus consumers can see and examine the actual cars they are purchasing. Since under the previous arrangements some dealers had sold cars that can be on the road only in another 2 or 3 months, naturally they will not have the stock for immediate sale now. This does not mean there is a drop in sales as portrayed.

Enforcement of the HPA will benefit consumers because:-

• Motor dealers cannot sell vehicles that are not in the showroom.

It is a consumers’ right to see and inspect the good he is purchasing – even for a very small item like a loaf of bread. But purchasers of new cars had lost this right as they were required to sign blank forms and Hire-purchase Agreements without even seeing, let alone examining the vehicles that would be delivered to them. This was a violation of the existing law all these years.

• Motor dealers cannot sell used vehicles that had unapproved repairs done on them after accidents.

Consumers should only be sold cars which are road worthy. From the 15 June to 26 June 2011, Puspakom’s 18-point inspections revealed that out of the 8,221 cars inspected, 125 failed inspection under the mandatory B5 category (i.e. engines/chasis tinted mirror and half cut cars) and 2,082 were found to have been repaired without the approval of the Road Transport Department or JPJ. Only the remaining 6,014 passed the inspection. This again is an existing provision of the law that had not been followed all these years.

Motor dealers have agreed in principle that the 18-point Puspakom test is good for consumer protection. However they raised some valid concerns about the reliability of the reports. Puspakom has assured that it will address these concerns and carry out the inspection more professionally.

Second hand car dealers should give PUSPKOM time to work out the teething problems and provide feedback for improvement of its inspection services.

• Motor dealers now cannot collect more than 1% of the car price as booking fee and must refund 90 % of the fee upon withdrawal of the booking.Consumers used to be coaxed into paying deposits on the assurance that if their loans were not approved, the deposits would be refunded. However, consumers used to have great difficulty getting back the deposits, some having to go to the Tribunal to get them back. It is only fair that the consumer should get most of his money back since there was not much administrative work carried out.

• No-more”marking up” is allowed to facilitate 100% loan.

There were car dealers who increased their sales by helping buyers to get 100% hire-purchase loans. This they do did by marking up the “cash price” of the vehicles, though it has always been an offence to give wrong information under the HPA. Thus hire-purchase loans were given to those who could ill afford to maintain the monthly instalments. This resulted in many non-performing hire-purchase loans, vehicles being repossessed, and some consumers being declared bankrupt. It is therefore to the advantage of consumers that banks are demanding that the car dealers strictly abide by the HPA.

According to the Insolvency Department, becoming bankrupt because of one’s inability to service vehicle loans topped the list of bankruptcy cases in Malaysia, accounting for about 24% of the total 80,370 cases between 2005 and May 2010 ( The Star 11.08.2010)

The dealers agree that the amendments are for the good of their customers. Therefore they should work hand-in-hand with the Ministry to implement fully all the provisions of the Hire-Purchase Act. End of the day, it will be for their own good as well since consumers would have confidence that they are not being conned by some unscrupulous dealers, and they are purchasing vehicles that they have seen and examined and in the case of used vehicles, these are fit for the purpose and comply with requirements of the law. They should therefore not protest against full implementation of the law as it will also benefit them in the long run.

For years consumers have been at the receiving and losing end. As such, the amendments must be kept to level the playing field.

We reiterate that the Ministry must stand firm and continue to protect consumers. It must implement fully the law passed by parliament to protect consumers.

Press statement (21 July 2010)

Shutdown co-ops that are agents of moneylenders

bannerCooperatives that are nothing more than agents of moneylenders should be shut down by the Malaysia Cooperatives Societies Commission (MCSC). The MCSC cannot and should not condone such an activity, whether legal or otherwise.
We have received complaints about one such cooperative which has no qualms about using unethical methods to get its members to sign up for loans with a licensed moneylender.
The existence of the moneylender came to light when a member who wanted to terminate his loan was asked to pay the balance to the company instead of the cooperative.
Below are some of the irregularities carried out by this particular cooperative:­

a) Discrepancy between loan approved and that received

The biggest shock for borrowers is the difference between the loan amount approved and the sum that is actually received by them. A borrower with a RM25,000 loan only received RM20,245. Another whose approved loan was RM45,000 ended up with only RM37,325 whilst another received RM33,995 out of the RM 42,000 approved. Thus the difference between the approved principal and the actual amount received can vary from RM4,000 plus to about RM8,000. Where did the money go?
Based on the breakdown given on the RM42,000, a sum of RM7,980 was deducted as “the cost of the loan”. In other words the cooperative took a commission which was 19% of the principal!

b) Misleading information about monthly repayments

She was told that for a RM40,000 loan for 15 years the monthly repayment for the first 3 years would be RM288 and thereafter it would be increased to RM431. However, when she was given a RM45,000 loan the monthly payment doubled to RM572 even though the loan amount had increased by only RM5,000.

c) Loan approved much higher than that applied for

She only wanted a RM40,000 loan but was advised to borrow RM55,000 as she qualified for the larger sum. When she insisted that she only wanted RM40,000, the cooperative went ahead and gave her a RM45,000 loan.

d) Loan much less than applied for

He was told by the agent that he would not have any problem getting a RM80,000 loan but in the end only RM42,000 was approved. The only reason that he signed up was because of the assurance that he would get an RM80,000 loan.

e) Not provided a copy of the agreement

The borrower never received a copy of his loan agreement. Nor does he have any copies of the documents that he was asked to sign.

f)  Interest higher than that verbally agreed upon

He was verbally told that interest on the loan was 8% per annum but in the end he was charged 10% per annum.

g)  High cost of terminating the loan

Immediately upon discovery that the cooperative had approved a loan of RM45,000 (as opposed to the RM40,000 she wanted) and that the monthly repayment would be RM572, she wanted to cancel it. She was then told that she had to pay RM68,234.54 to terminate the loan. A month later, that amount increased to RM68,839.51.

h) Expensive loans

The cooperative’s loans are far from cheap. The real interest charged is always higher than that stated due to two reasons.
Firstly, the interest is charged on a flat rate. This means it is calculated on the principal borrowed and not on the reduced balance at the end of each month, after the monthly repayment has been made.
Secondly, interest is calculated on the loan approved, not on the amount actually received by the borrower. As explained above, the amount credited into the borrower’s account is always a few thousand ringgit less than the approved loan.

The borrower whose interest on the loan turned out to be 10% per annum and not 8% per annum as promised, was unhappy because he felt that that at 10% per annum the loan was too expensive. He is probably not aware that the actual interest that he is paying on his loan is 21.7% per annum, based on how the interest on the loan is calculated and the amount that was credited into his savings account.

We believe that there are other cooperatives which are also acting as agents for moneylenders. The MCSC must act immediately to protect consumers from such pseudo cooperatives.

Bank Negara’s role in creating more credit card debt

No More Automatic 20-day Interest-Free Period for Credit Cardholders

Credit card debts will increase when the 20-day interest-free period (the grace period where purchase will not be charged interest) will no longer be automatically enjoyed by all cardholders.

Interest Free No More

Cardholders have been informed that from  1 July 2008 (for one bank it is 1 May 2008), only those  who make full payment of the previous month’s outstanding balance before the due date will get to enjoy the 20-day interest-free period. 

For those who make only partial or minimum payment on the previous month’s outstanding balance, interest will be charged on the day the new purchases are posted to the card accounts.

For example, Mr Tan’s July 2008 card statement shows an outstanding balance of RM2,000 but he repays only RM1,000. On 15 August 2008, he makes a RM800 purchase, which is eventually posted to his card account on 18 August 2008.  Since he does not settle the July statement in full, interest will be charged on the RM800 transaction from the posting date, ie from 18 August 2008.

Only if he had paid the outstanding balance of RM2,000 in full will the RM800 purchase not be charged interest.

Thus if the new ruling on the interest-free period comes into effect, cardholders will lose out. 

For  the banks it will mean another source of easy income  as on average only one-third of cardholders settle their outstanding amount in full every month.

Bank Negara must have amended the 2003 Credit Card Guideline so that the banks may introduce conditions for enjoying the 20-day interest-free period.

Clause of 10.2 of the Guideline says that all retail transactions shall be allowed an interest-free period of at least 20 days from the posting date of such transaction, regardless of the total outstanding balance in the credit card account.

The new ruling regarding the interest-free period must not be allowed to proceed. Bank Negara must revert to the status quo and make the 20-day interest-free period available to all irrespective of whether there is any outstanding balance in the previous statement.

Minimum Late Payment Goes Up

1 July 2008 is also the date when the minimum charge for late payment goes up.

Cardholders are expected to make a minimum repayment amount of 5% of the monthly total outstanding balance each month.  Those who fail to do so will be charged a late payment fee.

This late payment fee will also soon be raised.  From the minimum payment of RM5 or 1% on the minimum payment due (whichever is higher), it will now be increased to RM10 or 1%, whichever is higher (subject to a maximum of RM100) on the outstanding balance as at statement date.

Being late on payment by just 1 day will now cost double for those whose outstanding balance is not more than RM500. Only those who owe more than RM10, 000 will benefit because the maximum late payment fee is now capped at RM100.

But most of all why is there a need to double the minimum payment from RM5 to RM10?

On the other hand we think that there are other issues which Bank Negara should look into as they, in their own way, act as contributing factors for the credit card debts. These factors like the credit limit and the high interest rate are discussed below.

Credit Limit

Banks should not be allowed increase cardholders’ credit limit at its own discretion.  By doing so they are tempting cardholders to spend more.

There are cardholders who are not interested in the increase because they feel that the present limit is more than sufficient.   Others are not interested because they do not want to be tempted to spend more. A high credit limit also means that they stand to lose more if the stolen cards are used to run up bills.

Though cardholders can reject the increase, few will take the trouble to inform the bank. 

Once the cardholder continues to use the card he is deemed to have consented to the increase.

We should emulate the practice in Australia, where a bank can only increase a customer’s credit limit only if the customer requests it or consents in writing. 

At this juncture cardholders should also realise that the presence of the credit limit does not mean that they can never spend more than the limit.

This is not a real limit as the banks allow you to exceed their credit limit (to a certain extent), but ask you to pay a RM50 fine for doing so. 

One cardholder found out the hard way when he was charged RM50 because he had exceeded his credit limit by around RM90.  He had assumed that he could never spend more than the credit limit until he discovered the RM50 fee in  his card statement.

Secured Risk

Consumers have been told that interest for credit card loans are high because they are unsecured loans, unlike, say housing loans, which are secured against the properties.

However, this is not quite true.  Credit card debts cannot be considered  unsecured because there is a clause in the agreement which allows the banks to transfer funds from the cardholders’ other accounts with the same bank to pay off the card debts.

Examples of such clauses are:

Malayan Banking Bhd

“Maybank may at any time and without notice nor assigning reason thereof set off or transfer any monies standing to the credit of the Cardholder’s account with Maybank of whatever description and wherever located towards the reduction and/or discharge of any sum due to Maybank under this Agreement.”

Maybank does not even have to inform the cardholder that it has transferred money from other accounts in any of its branches to settle his card debt.

Standard Chartered Bank Bhd

“The Bank has  the right to combine or consolidate all or any of your account/s with the Bank of whatever description, whosesoever located and whatever currency, to transfer any sum to credit of the Card/s account/s for payment of any sum due to the Bank under this Agreement.  Where such combination, consolidation, set-off or transfer requires the conversion of one currency into another, you hereby authorise the Bank to effect the necessary conversion at the Bank’s prevailing exchange rates, which shall be determined by the Bank at its sole discretion.”

The bank can use one or more of the accounts to pay off the debt. The right to transfer funds covers even accounts in foreign currencies.

OCBC Bhd

“The Bank shall at all times so long as any money may be due on the Credit Card Account have a right of combination, set-off or lien in respect of all monies now or hereafter standing to the credit of the Cardmember on any banking account (whether savings, current, deposit or otherwise and in whatsoever and any other currency or currencies)  or available credit lines to the Cardmember at any branch of the Bank wherever located or any other  monies whatsoever held by or on behalf of any of the branches of the Bank for the account of the Cardmember (including but not limited to any proceeds from the realization of any security given by the Cardmember to the Bank)…”

Here the bank can even use any credit facility granted to the cardholder to settle the credit card debt.  Also any security held by the bank which is sold off can be used to settle the credit card debt.

Therefore if the cardholder’s house is auctioned by the bank (because of non-payment of housing loan instalments) excess proceeds from the auction can also be used to pay off the credit card debt.

From the examples, we can see that the credit card debts are pretty secured.

Thus a cardholder who has other accounts with the same bank should be charged lower interest rate as his loan is considered a secured loan.

MBF cards promotion – Tribunal awards consumer

Consumers often find that they have been misled by advertisements — the offer is not what it appears to be. Many choose not to pursue the matter further but not Bryan Chua of Tawau.

In 2008, he took MBF Cards (M’sia) Sdn Bhd or MBF to the Tribunal for Consumer Claims for its refusal to give him his 37” LCD TV and won his case. (However, MBF is applying for judicial review to overturn the Tribunal’s decision.)

FREE with Got ‘5’

For Bryan Chua it all started when he decided to join the MBF Cards promotion called the “Get Smart, Get Three ‘5’, Get a FREE Samsung 37” LCD TV!”

To be the first 100 cardholders each month to win the TV the cardholder had to:

1) Charge a minimum of RM50 to his MBF card.

2) Retain transaction slips with approval codes ending with a “5” for purchases made within the same calendar month.

3) Only upon collecting 3 of these transaction slips, call 03-2167 0555.

On 20 June 2007, Chua called the number listed in the brochure as he had collected 3 transaction slips with the approval code ending with a “5” He had expected to hear good news but instead his claim was rejected.

According to MBF, Chua did not qualify for the TV because 2 out of his 3 transactions were carried out with the same merchant (Sabah Electricity Sdn Bhd) on the same day.

He was then informed that under Clause 5 of the terms and conditions, “Each CardMember is entitled to claim only one qualifying transaction only with the approval code ending with ‘5’ from the same card acceptance terminal of a merchant on the same date of transaction.”

MBF further stated that the terms and conditions of the promotion were available on its website. However Chua felt (rightly we think) that such an important term should have been made known in the brochures and stickers promoting the competition and not made available to only those who have access to the website. (Brochures and stickers only mentioned that terms and conditions apply.)

In filing his claim with the Tribunal, he pointed out that:

“I have spent my money by using MBF card in order to be entitled to entries for the promotion/contest. … I feel that this is very unfair to consumers to hide the important terms and mislead consumers to use their credit cards ….”

MBF should not assume that consumers know about their promotion in details, it should assume consumers do not know about the promotion and all the terms and conditions. And the important terms have to be printed on the brochure to alert consumers at a glance when they look at the brochure. Most importantly, not all the cardholders are Internet users. MBF cannot expect every cardholder to be knowledgeable about the computer or Internet.

MBF has violated the Consumer Protection Act 1999, ACT 599, Laws of Malaysia, item 1 & item 4 of Section 14- Gifts, Prizes, Free Offers, etc which read as:

Item 1. No person shall offer any gift or other free item:

a. With the intention of not providing it; or

b. With the intention of not providing it as offered

Item 4. Where a person imposes a condition on the offer, he shall:

a. describe the condition clearly;

b. ensure that the description of the condition is conspicuously placed near the expression “free” or “free offer”, as the case may be; and

c. ensure that the print of the description of the conditions is at least half as large as the print used for the expression “free” or “free offer”.

On 6 December 2007, the Tribunal awarded Chua the 37” LCD Samsung TV and MBF was to hand it over within 14 days.

However as in February 2008, he had yet to receive his TV. He has been told that MBF is applying for a judicial review of the case.