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HUSNIYAH BT. ABD. RAHIM BILIK A2-14 Jabatan Pengurusan Sumber & Pengajian Pengguna

FEM 3204 : 3 (2+1) Perancangan Kewangan Dalam Pasaran Global Financial Planning in a Global Market. HUSNIYAH BT. ABD. RAHIM BILIK A2-14 Jabatan Pengurusan Sumber & Pengajian Pengguna Fakulti Ekologi Manusia. Chapter 7

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HUSNIYAH BT. ABD. RAHIM BILIK A2-14 Jabatan Pengurusan Sumber & Pengajian Pengguna

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  1. FEM 3204 : 3 (2+1)Perancangan Kewangan Dalam Pasaran GlobalFinancial Planning in a Global Market HUSNIYAH BT. ABD. RAHIM BILIK A2-14 Jabatan Pengurusan Sumber & Pengajian Pengguna Fakulti Ekologi Manusia

  2. Chapter 7 Financial Regulation and Laws, and the Effect on Individual and Organisation

  3. Financial Laws in Malaysia • Laws that govern consumer credit in Malaysia with different authorities administering these laws • These laws are: • Hire-Purchase Act, 1967; • Moneylenders Act, 1951; • Pawnbrokers Act, 1972; • Banking And Financial Institutions Act, 1989; and • Islamic Banking Act, 1983

  4. Administration The Hire-Purchase Act, 1967; Ammendment 2004 • under the jurisdiction of the Ministry of Domestic Trade and Consumer Affairs • regulates the business of hire purchase financing which is normally carried out by Credit Companies licensed under the Moneylenders Act, 1951 (or being granted exemption) and Finance Companies licensed under the Banking and Financial Institutions Act, 1989 (BAFIA)

  5. Administration Moneylenders Act 1951 and Pawnbrokers Act 1972 administered by the Ministry of Housing and Local Government the license is issued by the state government and Kuala Lumpur City Hall Moneylenders Act 1951 is to regulate money lending activities Pawnbrokers Act 1972 regulates the business of pawnbroking carried out by pawn shops

  6. Administration The BAFIA 1989 and Islamic Banking Act 1983 under the purview of the Ministry of Finance and administered by the Central Bank of Malaysia (Bank Negara Malaysia) The BAFIA 1989 regulates the business of commercial banks and finance companies The Islamic Banking Act 1983 regulates the business activities of Bank Islam Malaysia

  7. Hire-Purchase Act 1967 Repossession 1. Owner (seller) has the right to repossess the item whenever: Hirer fail to pay two successive full installment or fail to pay the last installment. If a hirer is deceased, the repossession could take place after there have been four successive of default payments The owner has issued written notice to the hirer indicating the intention to repossess using Schedule 4. Owner has issued another notice to the hirer 14 days after the first notice The period of 21 days after the notice of Schedule 4 expired

  8. Hire-Purchase Act 1967 Repossession 2. Hirer who returns goods not liable to pay cost of repossession, cost of incidental to taking possession, and the cost of storage Owner must give notice of Schedule 5 to hirer in 21 days after repossession take place to give enable the hirer to fulfilled his or her agreement Owner is compulsory to confess regarding the repossession of the item by giving the hirer a document stating that the item has been received, specification of the item, date, time and the address from where it is repossessed

  9. Hire-Purchase Act 1967 Repossession Owner has the right to sell the item repossessed after the period of 21 days (Schedule 5) expired Hirer has the right before the due date of submission of Schedule 5 to ask the owner to return back the item; a) after paying the amount payable plus the interest payable and all expenses regarding the repossession (expenses to repossess, storage, maintenance & repair), or b) after fulfilling the agreement by paying the balance of the loan and all expenses regarding the repossession Hirer has the right to introduce potential buyer that is willing to pay for the item according to the valuation of the owner.

  10. Moneylenders Act, 1951 • Credit companies that are licensed under this act give out business or personal/consumer loans as well as carry on hire purchase financing • While carrying out hire purchase financing it is subjected to the provisions of the Hire-Purchase Act just like the Finance Companies • It can only operate from the premise the address of which is stated in the license

  11. Moneylenders Act, 1951 (cont.) • limits the maximum interest rate that can be charged i.e. 12% per annum for secured loans and 18% per annum for unsecured loans • The companies granted exemption from the Act can operate from anywhere they like and charge any rate of interest they wish • As there is no provision in the Act to govern the terms and conditions of loans given, the companies can and do impose terms and conditions in their favor and at the expense of the consumers

  12. Pawnbrokers Act 1972 • Pawn shops are licensed under this act carry out pawnbroking which is a quick and convenient source of credit • The interest rate allowed to be charged under the law is 2% per month or 24% per annum which is rather high considering the fact that loans given out are more than covered by the value of the collateral • Gold objects such as gold chains and gold bangles when pawned are not weighed or measured and hence the weight or length of item is not recorded in the pawn ticket or receipt

  13. Pawnbrokers Act 1972 (cont.) • In the case of objects pawned are lost due to theft, robbery or fire, the pawn shop owner is only liable to pay compensation of the pawned sum plus another 25% of the pawned sum • Provides for pawnshop owners to forfeit objects pawned and not redeemed within the stipulated period of time if the pawned value is less than RM100.00 • For objects where the pawned value exceeds RM100.00 and which are not redeemed, then the pawnshop owner had to follow a certain procedure before the objects are auctioned off by a licensed auctioner

  14. Pawnbrokers Act 1972 (cont.) Pawnshop owners have to send a registered notice to the customer informing the action taken to auction the item. The notice should be accepted by the customer 7 days before the auction take place. The pawnshop owners are responsible on any lost or damage due to theft or fire

  15. Related to the Pawnbrokers Act 1972 (cont.) Customers are advised to write down their current address to the pawnshop and informing them of any change in address Always keep a receipt each time you made repayments. If the receipt is lost, you are entitled to have a copy of it free of charge

  16. BAFIA 1989 • regulates banks and finance companies and provides protection for depositors but not consumers i.e. borrowers of loans • Interest rate on loans is regulated through guidelines issued by the Central Bank and at present is pegged at Base Lending Rate (BLR) plus a spread of 2.5% • Interest rate for credit card loans are not regulated at all and vary from 1.75% to 2% per month • For credit card loans, the Central Bank guidelines only stipulate that the minimum monthly repayment is to be at 5% of total credit usage

  17. BAFIA 1989 (cont.) All other terms and conditions are stipulated and imposed by the banks and finance companies via the loan agreement signed In hire purchase financing, finance companies charge interest rates in accordance with the provisions of the Hire-Purchase Act 1967 which caps interest rate at a maximum of 10% per annum on a fixed term basis various interest rates imposed are based on different methods of calculation

  18. Credit sale • Is not under the Hire-Purchase Act because it is not financed by a third party • There is no ‘hirer’ • No need to pay a downpayment of 10% on the price charged • The credit is provided by the vendor • It also is not under the Moneylenders Act because no actual money changes hand from the lender to the borrower

  19. Credit Card Guidelines • The operation of credit cards are governed by the provisions contained in the Payment System Act 2003 (Act 627 PSA) and the general law of contract • Governing body is the Central Bank of Malaysia (Bank Negara Malaysia) • Pursuant to Sections 25 & 70 of the PSA, guidelines were issued by Bank Negara Malaysia on 19th October 2003 • Later updated to a Credit Card Guidelines (Version 2.0), came into force on 1st July 2004

  20. Credit Card Guidelines (cont.) • It sets the minimum requirement s on credit card operations that shall be adhered to by all issuers of credit cards in Malaysia • It has the force of law, as any person who fails to comply with the same may be guilty of an offence punishable under Section 57 of PSA

  21. Credit Card Guidelines (cont.) Guidelines on charges related to credit card • The late payment charges should not be more than 1% of the amount in default or Ringgit Malaysia Ten (RM10.00) whichever is higher, and • A finance charge may be imposed up to a maximum of 1.5% per month which is equivalent to 18% per annum on the total outstanding balance

  22. International Regulation/Laws • Laws in USA for credit/financial transactions • Truth –in-Lending Act • Credit Card Insurance Act • Fair Credit Reporting Act • Fair Credit Billing Act • Equal Credit Opportunity Act • Fair Debt Collection Practices Act • Electronic Fund Transfer Act

  23. International Regulation/Laws • Depository Institutions Deregulation and Monetary Control Act • Competitive Equality Banking Act • Fair Credit and Charge Card Disclosure Act • Home Equity Loan Consumer Protection Act • Financial Institutions Reform, Recovery and Enforcement Act • Home Mortgage Disclosure Act • Community Reinvestment Act

  24. Issues and Problems Related to Financial Laws • Several legislations (ministries) governed the laws • A consumer would face difficulty in solving their problems related to financial matters or any transactions in the financial industry. • Several issues and problems faced by consumers are discussed 1. The requirements would vary from one legislation to another. Eg. the moneylender & pawnbroker need license to operate but the licensing requirements are not provided for the regulation of hire purchase activities.

  25. Issues and Problems Related to Financial Laws 2. The maximum rates for interest charge are different. • For hire-purchase transaction, the maximum rate for the fixed charge is 10% and 17% for the variable charge, • pawnbroking transaction is 2% a month which is equivalent to 24 % per annum • moneylending is at 12% per annum for secured loans & 18% per annum for unsecured loans.

  26. Issues and Problems Related to Financial Laws 3. There are also problems in the application of those statutes since they are under the purview of different ministries. • The Moneylenders Act 1951 and the Pawnbrokers Act 1952 are under the purview of the Ministry of Housing and local Government. • The Banking and Financial Institutions Act 1989 is administered by the Central Bank of Malaysia (Bank Negara) and is under the jurisdiction of the Ministry of Finance.

  27. Issues and Problems Related to Financial Laws • The Hire Purchase Act 1967, is under the jurisdiction of the Ministry of Domestic Trade, Co-operatives & Consumerism. • Many co-operatives including Bank Rakyat is administered by the Co-operatives Societies Act 1993 & at present are under the purview of the Ministry of Domestic Trade, Co-operatives and Consumerism. • Administration and supervision would be different. It does not only create problems to administrative bodies but create confusions among consumers.

  28. Issues and Problems Related to Financial Laws 4. Some consumer credit transactions are not governed by any statute, credit sales & credit card. • Credit sales are offered by retail outlets selling consumer durable goods eg furniture, electrical/electronic products. • Payment are made by installments & total payment can be more than double the cash price. • Credit sales are not governed by Hire Purchase Act 1967 as it is not financed by a third party.   • It does not falls under Moneylender Act 1967 as the credit is given by the seller & not by the moneylender. There is no money changed hand between the parties.

  29. Issues and Problems Related to Financial Laws • The credit sale consumers can only rely on the law of contract, the Sales of Goods Act 1957 & the Consumer Protection Act 1999 which are not the statutes dealing specifically with credit transactions. •  For credit card, there is no statutory protection available to consumers. • The Credit Card Guidelines issued by the Central Bank only provide that the maximum interest charge is 18 %. • All other terms in the agreement are left to be determined by the financial institutions without statutory intervention.

  30. Issues and Problems Related to Financial Laws • Eg. Loan provided by co-operative society • Another type of consumer credit is the loan provided by any co-operative society registered under the Co-operative Societies Act 1948 to its members. • It does not fall under the Moneylender Act 1951 since it is clearly excluded by section 2A in the act. • The provisions regarding loan under the Co-operative Societies Act 1948 are generally provided however it fails to address many issues. • Section 51 of the statute clearly states that credit facility is subjected to the by-laws of such co-operative society.

  31. Issues and Problems Related to Financial Laws • Looking at that, the terms of the loan seems to be determined by the co-operatives. • Recently, the Ministry of Domestic Trade, Co-operatives and Consumerism is in charge of handling the activities of co-operative societies however it is too early to see its effectiveness in governing these transactions

  32. Issues and Problems Related to Financial Laws • The standard form contract that already becomes a standard practice in the industry creates problem. • No time or opportunity to read or get professional advice before signing the contract. • They might not understand its terms. If they do , financial providers may not be willing to change the clauses, making no choice for consumers either to take it or leave it. • In Malaysia, there is no statutory provision that deals specifically with exemption clauses and standard form contract.

  33. Issues and Problems Related to Financial Laws 6. The availability of good redress mechanism is an important aspect in consumer protection. • For banking transactions, the Financial Mediation Bureau (FMB) is an independent body that provides avenue as alternative to courts that settle disputes between financial providers and the consumers. • However, not all financial providers are members of FMB & thus consumers are not protected in all situations.

  34. Issues and Problems Related to Financial Laws • Under the Consumer Protection Act 1999, the Tribunal for Consumer Claims (TCC) has been established as an alternative redress mechanism to consumers in a cheap, quick & informal manner. • However, only complaints which are under the jurisdiction of the Ministry of Domestic Trades, Co-operatives & Consumerism can be brought to the TCC.

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