Cooperatives 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.