Response to submission on

Consumer Credit Act:

Consultation Paper Part 2
26 September 2023
Response to submission on Consumer Credit Act: Consultation Paper Part 2

Table of Contents
A. Introduction ................................................................................................................................. 3
General ................................................................................................................................ 3
B. Authorisation ................................................................................................................ 4
General requirements ......................................................................................................... 4
Exemption from authorisation ........................................................................................... 5
Governance ......................................................................................................................... 6
Minimum Financial Requirements ..................................................................................... 7
Fitness and Probity ............................................................................................................. 8
Reporting ............................................................................................................................. 9
Shariah............................................................................................................................... 10
C. Conduct....................................................................................................................................... 11
Advertisement and Promotion ......................................................................................... 11
Transparency and Disclosure .......................................................................................... 11
Fairness of Contract Terms .............................................................................................. 12
Fees and Charges ............................................................................................................. 12
Affordability Assessment ................................................................................................. 13
Fair Debt Collection .......................................................................................................... 14
Financial Hardship Relief ................................................................................................. 15
Others ................................................................................................................................ 16
D. Hire Purchase ............................................................................................................................ 17
Pricing of hire purchase loans following amendments to the Hire Purchase Act 1967
provisions.......................................................................................................................... 17
Administration of Hire Purchase documents .................................................................. 19

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Response to submission on Consumer Credit Act: Consultation Paper Part 2

A. Introduction
1 The Consumer Credit Oversight Board Task Force (CCOBTF or the Task Force) issued
its Consultation Paper Part 2 (CP2) on 5 April 2023. Divided into two broad sections,
the CP2 contained the proposed regulatory requirements on authorisation and conduct
for licensed and registered persons and the proposed amendments to the Hire
Purchase Act 1967 (HPA). A total of 35 submissions were received over the course of
the consultation period which ended on 15 May 2023.

2 On an ongoing basis, the Task Force also engages its stakeholders e.g. potential
regulatees and consumer associations, on industry-specific matters and credit
consumer issues.

3 For ease of reading, this report has been structured to recap the questions raised in
CP2, provide a summary of comments and feedback received and consequently,
responses to these issues.

4 Feedback received were mainly on the requirements for authorisation and continuous
obligations, types of fees and charges to be imposed, operational and reporting
challenges. There were also suggestions for close collaboration between regulator and
industry players in promoting greater financial literacy and consumer awareness. This
report also includes areas where clarifications were sought.

General
5 Industry players recognised and supported the need for establishing a proper regulatory
framework for non-bank credit providers (CPs) and credit service providers (CSPs) to
be undertaken over a phased approach.

6 However, taking into consideration the current industry demography, and nuances of
each sector, industry players highlighted the criticality for regulatory requirements to be
scaled or proportionate to the type and size of businesses.

7 The adoption of a digital business model was lauded as it would improve business
effectiveness and efficiency. However, this would highly depend on industry
commitment and readiness.

8 Since Phase 1 will focus on regulating entities which have never been regulated before
i.e. Buy Now Pay Later (BNPL), leasing, factoring, impaired loan buyers, debt collection
agencies as well as debt management and consultancy companies, it was suggested
that the regulatory framework should be one which is practical to apply and easy to
comply. As such, requirements which are technical in nature such as the calculation
on debt-to-service ratio (DSR), calculation on late payment charges and effective
interest rate, must be drafted in simple language that can be easily understood and
supplemented with guidance to ease understanding and compliance.

9 CCOBTF’s Response
The Consumer Credit Oversight Board (CCOB) will strive to ensure that regulatory
requirements are ‘fit for purpose’ to promote a healthy and competitive credit market,
while ensuring the protection of credit consumers. In this regard, regulatory

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Response to submission on Consumer Credit Act: Consultation Paper Part 2

requirements would take into account consumer demography/profile and will be

commensurate with the potential risk of harm to such credit consumers.

10 While the CCA will be principle based, the CCOBTF is mindful on the need for clarity
and granularity in the Authorisation and Conduct Handbooks to ensure that operational
expectations are clear. Further illustrations via infographics and examples will also be
provided in the Handbooks or any supplementary documents.

11 Cognisant of the significant diversity in business models within the non-bank credit
industry, the CCOBTF aims to be facilitative of different business models that are sound
and aligned with the fair treatment of credit consumers. While the CCOB will not impose
a “one-size fits all” type of internal standard operating procedures on its regulatees, it
expects regulatees to ensure that their internal policies and procedures commensurate
with regulatory requirements and a sound business model. Regulatees are expected to
set out their business model and distinctive features, if any, in their submission of their
Business Plan for purposes of seeking authorisation or registration.

12 The CCA will evolve over time as the CCOB expands its role through the different
phases. Relevant amendments will be undertaken to the CCA with the transition to
Phase II and ultimately Phase III. Throughout this process, the CCOB will continue to
engage and collaborate closely with industry participants, the public and key
stakeholders.

13 Existing non-bank credit entities governed by the respective Regulatory and

Supervisory Authorities (RSAs) in Phase I will continue be subjected to existing laws/
guidelines imposed (e.g. Consumer Protection Act 2017 under Kementerian
Perdagangan Dalam Negeri dan Kos Sara Hidup or KPDN and the Moneylenders Act
1951 under Kementerian Pembangunan Kerajaan Tempatan or KPKT in Phase 1). This
includes, household macroprudential measures related to responsible lending, such as
the need to ensure new credit applications are subject to affordability assessments and
prudent Debt Service Ratios to prevent household over-indebtedness.

B. Authorisation
General requirements

The Task Force would like to seek views on:

1. The general requirements for authorisation; and
2. The sufficiency of the grace period of 6 months after the enactment of the CCA for
industry players covered under Phase 1 to apply for such authorisation.

14 Industry players requested for a longer grace period (i.e. up to 12 months as opposed
to the proposed 6 months) for compliance to requirements and a shorter review and
application process by the CCOB (i.e. 30 days as opposed to the proposed time frame
of between 1-3 months). Clarification was also sought on authorisation requirements
imposed on entities that are carrying on more than one credit provider or credit service
provider businesses or a combination of both.

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15 CCOBTF’s Response
The CCOBTF acknowledges the importance of providing guidance to ensure a smooth
transition for the identified players to comply with the requirements under the CCA.
Even after being approved for licence or registration, regulated entities would need to
be aware of and accountable with respect to their obligations in terms of reporting,
maintaining minimum financial requirements and adhering to professional standards.

16 As such, for the first four (4) months from the enactment of the CCA, the CCOB will be
granting a grace period where industry players are deemed to have an interim
permission to continue their business. During such time, the CCOB will be devoting its
resources in conducting intensive consultations and engagements with industry players
to prepare them for submission of licence or registration. This is intended to minimise
business disruption and ensuring a smooth transition process. At the end of the four
months period, all industry players to be authorised under Phase 1 are expected to
have submitted their applications to the CCOB.

17 As part of its assessment on applicants for licence or registration, the CCOB will also
perform a comprehensive review as to whether the CPs or CSPs would be able to meet
the continuous obligations expected on a licensed or registered person.

18 Entities undertaking multiple credit businesses or credit service businesses will be

evaluated holistically and depending on the organisation structure and business set up,
certain requirements need not be duplicated for example in relation to having a person
responsible for compliance. In the circumstance where an entity undertakes a few types
of credit businesses, the person responsible for compliance could be the same. While
there are synergistic benefits and economies of scale in carrying multiple credit
businesses or service businesses, such entity must have in place policies and
procedures to address any possible risks and conflict of interest.

19 Entities whose application for authorisation has either been rejected or have yet to be
licensed/registered at the cut-off point of 7-8 months after the enactment of the CCA,
will not be allowed to continue their business. Those that continue to operate will be
deemed as ‘carrying on a credit business or credit service business without a licence’
and may be subjected to the CCOB’s enforcement actions which include public
reprimand, fine or penalties. This information will also be shared in the public domain
as a measure to alert credit consumers.

20 Conversely, entities which have been properly authorised by CCOB will be included in
the list of licensed/ registered entities. This serves as a ‘positive list’ to create
awareness on entities which are operating legally within the law and will be published
on the CCOB’s website for ease of public reference.

Exemption from authorisation

21 Industry players requested further clarification on the exemptions from authorisation

while also noting that any application for variations from certain regulatory
requirements may attract regulatory compliance fees.

22 CCOBTF’s Response
All entities carrying on the business of providing credit or credit service need to be
authorised by the CCOB unless specific exemption has been accorded under the CCA.

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In this case, the persons falling under the specific exemption are those that are
authorised by existing RSAs such as Bank Negara Malaysia (BNM), the Securities
Commission Malaysia (SC), KPKT and KPDN.

23 Non-bank CPs whose consumers are not caught under the definition of ‘credit
consumer’ under the CCA are only expected to provide an attestation to the CCOB.
Such attestation is taken as a confirmation by the entity that its customer base does not
fall within the scope of the CCA. For example, a leasing company offering credit only
for businesses with credit amount exceeding the threshold of RM300,000. Such
attestation must be submitted on an annual basis and in any event that credit is
intended to be extended to a ‘credit consumer’, prior authorisation must be sought from
the CCOB.

24 Regulatory compliance fees are charges imposed in circumstances where the

regulated entity is unable to meet certain regulatory requirements and have asked for
an extension of time (EOT), for example, on the timely appointment of a Chief Executive
Officer (CEO), submission of quarterly reports etc. The intention of imposing fees and
charges is to instil regulatory and self-discipline among the industry players.

25 Regulatory requirements which are fundamental/key cannot be accorded with EOT. For
example, an entity whose financial position has fallen below the minimum requirement
with heightened risk to consumer must take immediate measures to remedy the breach
and may be restricted from taking on new customers. Until and unless prior written
consent has been received from CCOB or relevant RSA under specific conditions, such
regulatee must cease its business.

Governance1

The Task Force would like to seek views on the proposed scope of the governance
requirements set out in this section.

26 Respondents were generally supportive with the scope of governance requirements but
highlighted that given industry fragmentation, requirements must be proportionate.
Smaller entities with limited resources and skillsets found the requirement to develop
comprehensive internal policies and procedures to be challenging and may need
guidance from the CCOBTF. There are also CPs and CSPs operating within a group
structure. Such entities should be allowed to leverage on resources at the parent
company, for example the outsourcing of internal audit, compliance and Shariah
functions.

27 CCOBTF’s Response
The CCOBTF acknowledges the views from industry players on the need to have
governance requirements that commensurate with the size and nature of business as
non-bank CPs and CSPs are generally smaller in size.

1 Among some of the governance matters include meeting the following obligations: (i) Organisational
requirements (e.g. being a locally incorporated company, having appropriate operational procedures and
internal controls, having policies on conflict management, anti-corruption, complaints management and risk
management); and (ii) board requirement (e.g. board to comprise appropriate mix of skills, knowledge and
experience that fits the strategic goal of the organisation and promotes effective board deliberations, board's
responsibility to include establishing an internal audit function and compliance function).

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28 It was also recognised that while internal policies and procedures must be sufficient, it
must also be practical and fit for purpose to meet the business as well as compliance
needs of the licensed/registered entity.

29 Amongst others, the outsourcing of certain functions such as internal audit, company
secretarial, human resource to the group or an external outfit is acceptable provided
that it does not compromise data integrity, security and compliance to laws and
regulations. There must be assurance that material conflicts of interest will be effectively
mitigated or addressed. Licensed/ registered entities must ensure that a senior key
personnel is made responsible and accountable for the compliance function.

Minimum Financial Requirements

The Task Force would like to seek comments and views on:
1. The proposed minimum financial requirements are as per table below; and
2. The expectation to maintain such financial requirements as a continuous
obligation.
Type of
No. Proposed minimum financial requirements
business
1. BNPL

2. Factoring

3. Leasing Shareholders’ fund of RM2 million

Impaired Loan
4.
Buyer (ILB)
Debt
5. Collection
Agency (DCA)
Debt Shareholders’ fund of RM500,000;
Counselling or
and Shareholders’ fund of RM250,000 and Professional Indemnity
6. Insurance coverage of RM250,000
Management
Services
(DMA)

30 This area attracted varying suggestions across different sectors and business types, as
detailed out below:
a) Guidelines on the area should be aligned to other jurisdictions’ latest financial
services guidelines (e.g. E-money guidelines/ Singapore’s payment institutions).
b) Further explanation is needed where entities are carrying on multiple credit
businesses.
c) A significant number of players reported that their businesses have been running
on a negative shareholders’ fund or have no financial backing from any financial
institutions.
d) Treatment between CPs and CSPs should be significantly different given that CSPs
do not extend loans to credit consumers.
e) The proposed minimum financial requirement on the DCA sector should be
increased to RM1 million to promote higher standard of professionalism.

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31 Industry players were of the view that the requirement on the board to submit an
undertaking/ confirmation that the regulated entity has adequate financial resources for
the next 12 months is too onerous especially as it would involve non-executive
directors. The suggestion is for the CCOB to review the Management Discussion and
Analysis (MD&As) as contained in the annual report.

32 CCOBTF’s Response
The thresholds for proposed financial requirements were based on industry data and
guided by the principles of inclusiveness, financial and professional integrity, minimising
disruption, encouraging competition while ensuring operational continuity. The quantum
has been differentiated premised on whether the entity is providing credit or credit
service, benchmarked against existing regulated non-bank entities in Malaysia and
contextualised to the current state of the industry in the economy and cost of doing
business.

33 A breach of such requirement may result in the suspension of the regulated business
unless prior written consent from the CCOB or relevant RSA has been obtained. The
CCOBTF takes cognisance of the suggestions raised but believes that, on balance, the
financial requirements are fair and proportionate to the size and type of business and
the resources that would need to be put in place to meet higher standards for the
protection of consumer while remaining financially viable. The requirements have also
carefully considered competition effects to ensure that financial requirements do not
unduly hinder credible new entrants from competing in the consumer credit market.

34 Generally, industry players undertaking multiple businesses would have to comply with
the higher financial requirements. The extent of increase would depend on the types
and combination of such credit businesses and would be further clarified in the
Authorisation Handbook.

35 In relation to the requirements of providing confirmation on the entity’s financial

adequacy and soundness, the CCOBTF noted the suggestion and is amenable to
reviewing the content of MD&As in annual reports to assess whether its coverage and
details would be sufficient to meet the supervisory needs of CCOB.

Fitness and Probity2

The Task Force seeks comments and views on the scope of fitness and propriety as laid
out in Appendix 2 of the Consultation Paper.

36 Industry players recognised the criticality in ensuring that all players including their key
personnel are fit and proper. However, they highlighted that any approval and
notifications required should be attended expediently so as not to delay business
operations nor increase operational burden. A longer timeframe was requested for the
notification of appointment/ reappointment of directors which currently stands at 2
business days.

2 The CP2 laid out key requirements that must be complied by controllers, directors and senior management of
a CP and CSP in terms of (a) probity, personal integrity and reputation; (b) competency and capability; and (c)
financial integrity. CPs and CSPs are also expected to conduct personal vetting prior to the appointment or
re-appointment of the directors and senior management to ensure their fitness and probity in assuming the
position, and such appointments and re-appointments must be notified to the CCOB.

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37 Industry players were also concerned that requirements on the approval of CEO and
change in controller may be too strict leading to business delay/ disruption and cost to
be incurred towards hiring the appropriate individuals. Further clarifications were sought
on the process of seeking the CCOB’s approval for such appointment and the extent of
vetting necessary on key personnel to satisfy the requirements on fitness and probity.
Some of the respondents have suggested that such vetting should be limited to
bankruptcy cases and offences convicted by the court of law.

38 CCOBTF’s Response
The CCOBTF noted the issues raised and reiterates that the onus is on the regulatee
to ensure that individuals are fit and proper before being appointed. CCOBTF is of the
view that this requirement to notify the CCOB following official appointment or re-
appointment of directors within 2 business days is reasonable. This is also a common
practice by other regulatory agencies to ensure sound governance and accountability
frameworks are observed by regulatees. As a digital-based regulator, the CCOB will
strive to establish a reporting platform which is simple yet effective to ease regulatory
submissions.

39 CCOB’s approval of CEO and controller is critical as these persons/parties have

significant role in driving business direction or decisions of an entity. The approval
process will entail submission of information about the person’s qualification,
experience and expertise in the business. Relevant vetting will be performed on such
individuals to affirm that there are no elements of concern. Notwithstanding the
approval, regulated entities are obliged to notify the CCOB whenever there are
suspicions or events which may have affected the person’s fit and properness standing
(e.g. ongoing court/ bankruptcy cases). Further details on what is required to be
furnished to the CCOB for the purpose of fit and proper assessments will be detailed
out in the Authorisation Handbook.

Reporting3
The Task Force would like to seek your views on the proposed reporting requirements
and pre-requisites to support the industry’s readiness to submit compliance reports
digitally.

40 Industry players requested for an industry engagement session to be carried out by the
CCOBTF to familiarise themselves with the scope of reporting requirements prior to the
implementation due date. Specifically on the submission for annual audited statements,
it was suggested that the reporting timelines should be similar or standardised with that
of other regulators (e.g. Bursa/ SSM). Industry was of the view that a senior personnel
can be made responsible towards ensuring timeliness and quality of reporting to the
CCOB.

3 As an authorised person, a CP and CSP would be subjected to among others, obligation to submit information
on a periodic basis. Apart from the submission of audited financial statements, they are also expected to report
key balance sheet data, as well as data on their borrowers/customers, loan accounts including impaired
accounts and complaints lodged/resolved. Prompt updates (within a month) to the CCOB is also expected in
the case of material changes taken place in the operations of the CP and CSP. Such reporting will be facilitated
with the digitalisation of information flows at the CCOB as a digital-based regulator.

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41 CCOBTF’s Response
The CCOBTF is amenable to the suggestion towards aligning the timeline for audited
statements submission to that of Bursa/ SSM to minimise regulatory burden to players.
In relation to other forms of reporting e.g. on total assets, loans, number of borrowers/
customers, number of loan accounts, number of lodged complaints etc, the CCOB
endeavours to establish a digital/ automated reporting platform for a seamless and
efficient process.

With the coming into force of the CCA, the CCOB will organise training sessions and
engagements with industry players to prepare them towards meeting these continuous
reporting obligations and data requirements.

Shariah4
The Task Force seeks views on the proposed arrangements and requirements for credit
providers carrying on Islamic credit business.

42 Respondents were generally positive to the proposed Shariah governance

arrangements and requirements. However, respondents were of the view that existing
products which have already been certified as Shariah-compliant should be
grandfathered given concerns that Shariah requirements would increase regulatory
costs. Notwithstanding this, dated approval by the Shariah Advisor(s) on such products
should be furnished to the CCOB.

43 It was also suggested that any new Shariah-compliant offerings must be signed off by
the Shariah Advisor(s) following which, a notification should be submitted to the CCOB.
In facilitating the introduction of such new product offerings, the application of BNM
Shariah standards must be consistent among the regulated entities.

44 In relation to the proposed process flow in seeking ascertainment of Islamic law and
compliance, respondents requested for the CCOB to create a dedicated communication
channel or dedicated officer within the CCOB’s Shariah Unit for efficiency in handling
Shariah matters under the CCA. Clarifications were sought as to the scope of
approvals/ engagements required from the SAC of BNM and circumstances where an
in-house Shariah unit may be preferred.

45 CCOBTF’s Response
While the CCOBTF acknowledges the additional measures and costs to ensure Shariah
compliance, these are necessary to preserve sanctity of the financing products that are
represented to consumers as being Shariah-compliant. The CCOBTF agrees that to
avoid business disruption, existing Shariah-compliant products can be grandfathered
into the new regulated ecosystem. However, it will still be subjected to Shariah audits
and must be restructured, if necessary, to meet Shariah compliance requirements.

46 Given how imperative this area is, the CCOB will provide a direct channel and an
adequate time charter for ease of industry players’ communications with the Shariah
Unit. Entities regulated by respective RSAs must channel their issues to their RSA for
further direction.

4 Among the Shariah requirements highlighted in the CP2 is the positioning of the Shariah Advisory Council
(SAC) of BNM with regard to the ascertainment of Shariah rulings for the consumer credit industry and the
escalation process at the CCOB and the respective RSAs on Shariah issues raised by the industry players.

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47 Industry players are given an option to either appoint Shariah advisors or establish
Shariah committee at the entity or Group level (where applicable) or outsource the
Shariah function to a registered/ approved entity. Nonetheless, the Shariah advisor or
member of Shariah committee must be persons approved/ registered by the SC,
currently serving an Islamic financial institution, or specifically approved by the CCOB.

48 The CCOBTF would also like to clarify that SAC’s approvals, would only be necessary
for new innovations of ‘new to market’ issues or products. For plain vanilla issues or
products, industry players are expected to adopt or conform to existing SAC
resolutions. In relation to this, the CCOB will ensure that key Shariah requirements will
be outlined in the laws/ guidelines for ease of reference to entities carrying on an Islamic
credit business.

C. Conduct
Advertisement and Promotion5
The Task Force would like to seek your views on any practical challenges you may face
in implementing the requirements for advertisement and promotion.

49 Respondents were supportive but requested clarity and specificities for purposes of
implementation for e.g. process of seeking approval, format of advertisement including
font size and language, definition and type of promotions/ materials allowed. It was also
proposed that the issuance of documents or promotional materials must be made in
dual language and the need to emphasise on Shariah compliance practice (e.g. any
product promotional material or information should state the approval (and the date) by
the appointed Shariah advisor).

50 CCOBTF’s Response
Industry players are not required to obtain the CCOB’s specific approval with regard to
their advertisement or promotional material. Instead, the CCOB expects industry
players to adhere to the principles of consumer protection and do not mislead/ deceive
consumers. The CCOB will provide the necessary guidance and illustration in the
Conduct Handbook.

Transparency and Disclosure6

The Task Force would like to seek your views on the challenges anticipated in meeting
the disclosure requirements. Please supplement your feedback with relevant rationale.

51 Respondents agreed on the importance of this transparent disclosure to credit

consumers but highlighted industry constraints in areas where digitalisation/ digitisation
is required.

5 Key requirements are stipulated in the CP2 in ensuring that a CP or CSP in its dealings with the credit
consumers, does not adopt aggressive tactics, make false commitments or representations or provide false,
misleading or deceptive information.
6 In facilitating the credit consumers to make informed decisions with regard to a credit product or service, it is
important that a CP or CSP provides clear, unambiguous, accurate and sufficient information at the pre-
contractual stage, at the point of entering into a credit agreement and during the term of the credit agreement.

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52 CCOBTF’s Response
CCOBTF acknowledges the challenges faced by the industry if continuous
communication with credit consumer is expected throughout the period of the credit
agreement. However, this is important to ensure that credit consumers are constantly
reminded of their commitment or obligation as accepted in the credit agreement. Prior
to entering into the credit agreement, the salient terms/conditions or features of the
credit product or service must be clearly disclosed and acknowledged by the credit
consumer.

The application of technology is highly encouraged for efficiency and cost minimisation.
Given such business case, industry players with budgetary constraints should take
steps to gradually scale up its extent of technology application.

Fairness of Contract Terms7

The Task Force would like to seek your views on the requirements for fairness of contract
terms. Please supplement your feedback with relevant rationale.

53 While respondents were generally receptive of the proposed requirements, the

factoring industry raised a concern that its operations usually entail a bilateral
arrangement where the funding need is tailored or customised. As such, contract terms
should have some flexibility as opposed to being a regulated agreement which is
constricting and may benefit consumers predominantly. Restrictions on early
termination fees should be fair to both parties (i.e. sustainability of business and non-
detrimental to consumers) in an agreement.

54 CCOBTF’s Response
The CCOBTF will review and reflect these areas (where applicable) in the Conduct
Handbook.

Fees and Charges8

The Task Force would like to seek your views on the challenges anticipated in
implementing the requirements on fees and charges. Please support your views with a
clear rationale and provide elaboration on the specific challenges to meet the
requirements.

55 Respondents were agreeable with the principle that fees and charges must not be
excessive or unreasonable. However, industry players suggested that such broad
requirements should not be tantamount to a cap or having a maximum quantum/ limit.
The rationale for such is because of collection costs incurred regardless of the loan
sizes as well as the significant diversity of credit business. It was also surmised that

Among the outlined requirements are pertaining the key credit information (applicable interest/ profit rate, fees
and charges, tenure and total credit repayment), comprehension of the information (language, complexity of
terminologies) and periodic updates on the credit standing of the consumers.
7 Fairness of contract terms requires a CP or CSP (if applicable) to ensure that the terms of the credit agreement
provide a fair balance between the rights and obligations of the parties involved.
8 Identified requirements with regard to fees and charges among others include the prohibitions for the CP or
CSP from charging excessive interest or profit rate and imposing excessive or unreasonable fees, as well as
some requirements on late payment charges.

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market forces could be the determining factor in deciding the extent of fees and charges
to be implemented in a specific industry.

56 Industry players also required clarity as to the interpretation of “excessive”. A more

definitive reference such as “in total not exceeding maximum Effective Rate” or “shall
be justifiable as actual cost” would be preferred. The interpretation of what could be
‘excessive’ late payment charge (LPC) could also be referenced to policy documents
issued by BNM on LPC, e.g. differentiating between the ta’widh (compensation) and
gharamah (fine and penalty) elements in the case of Islamic structures, while the
generic late payment of maximum of 8% may be adopted for conventional structures.

57 With respect to the practice of issuing reminders prior to payment due dates, industry
players were of the view that this will require additional resources. Currently, given that
standard industry practices are to issue reminders when payment is overdue, a
definitive treatment was also suggested in differentiating “reasonable time” between
digital reminder vis-à-vis physical reminder.

58 CCOBTF’s Response
The CCOBTF acknowledges the need for a more definitive interpretation of ‘excessive’
or ‘reasonable’ for easier operational implementation although practical challenges are
noted given the diversity in business models. CCOB will strive to provide appropriate
guidance in the Conduct Handbook on this matter to achieve the targeted consumer
outcomes in mind.

59 The CCOBTF takes note that issuing reminders prior to due dates would incur
additional costs. However, industry players should consider leveraging on technology
to achieve cost and time efficiency. The CCOBTF is also open to alternative models of
sending reminders to meet the same objectives. This expectation is premised on
CCOB’s mandate of protecting vulnerable credit consumers. We believe that such
practice would be necessary towards encouraging prompt payment to avoid late
payment charges. Overall, it creates greater discipline and responsible borrowing
practices and will be of benefit to the CPs.

Affordability Assessment9
The Task Force would like to seek your views on the requirements for affordability
assessment, including any implementation challenges that may arise. Please support
your views with clear rationale and data.

60 Though the industry response is generally satisfactory with the methods, areas on
complications faced in implementing DSR were highlighted. The expectation to
calculate DSR by non-bank CPs were questioned given prevailing limitations and the
different offering context as opposed to bank financing. These include the lack of
centralised credit reporting entity, unavailability of data points such as salary slip, the
nature of loans issued (e.g. collateralised vis-à-vis non-collateralised) and the possibly
inaccurate verification of consumer income/ debt obligations. Industry players submit

9 A CP is expected to conduct an affordability assessment (by deploying the Debt Service Ratio computation)
on its potential customers in ensuring that they are able to meet the financial obligations to be incurred under
the credit agreement without resulting in undue financial difficulty. However, the CCOBTF is also cognisant of
the emergence of alternative data points for the assessment of a credit consumer’s affordability, and flexibilities
may be considered for the application of such data points.

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Response to submission on Consumer Credit Act: Consultation Paper Part 2

that the application of Artificial Intelligence and internal credit scoring would be a good
proxy for credit worthiness and affordability.

61 In relation to the maximum affordability threshold (MAT), industry players suggested

that it should be set at the individual level as opposed to a cumulative limit across all
BNPL operators. This is due to the constraint in securing an industry wide credit
database to implement a cumulative limit.

62 CCOBTF’s Response
The intended assessment of affordability goes beyond the assessment of a borrower’s
creditworthiness. As a general principle, CPs are expected to undertake affordability
assessment as part of their due diligence on their credit consumers particularly where
credit extended is above the MAT. In relation to this, alternative credit risk scoring or
behavioural predictive model that is proven reliable can be deployed to assess and
gauge affordability of credit consumers to borrow.

In circumstance where the credit granted is significantly above the MAT, income
verification would be expected. For example, where credit line be extended say, above
RM10,000, best practice is for CP to require evidence of a potential borrower’s income
and commitments. Given different industry standards and practices, the CCOB in its
early stages will not be stipulating the credit threshold deemed as ‘significant’ which
then calls for verification of income and commitments. CPs however are expected to
have in place and to submit to the CCOBTF, their internal standards and policies on
this matter.

Fair Debt Collection10

The Task Force would like to seek views on the requirements for fair debt collection
practices. Please supplement your feedback with relevant rationale.

63 Respondents were generally agreeable to the requirements but suggested that

requirements be streamlined with banking practices (Fair Debt Collection Practices Act)
for e.g. the use of authorisation cards, right to home/ workplace visits, communication
channels, involvement of friendly parties known to credit consumer.

There were also views that CPs should not be made responsible on the conduct of
appointed DCA as the latter would already be regulated by the CCOB as a registered
credit service provider.

Some respondents suggested that specifically for events of a default, the rightful party
(i.e. consumer or CP) responsible to bear the legal fees incurred should be detailed in
the laws/ guidelines.

It was further proposed that the Conduct Handbook outline the eligibility criteria for
rescheduling and restructuring (R&R) of financing.

10 Certain requirements have been delineated in the CP2 emphasising that a CP or CSP must practise ethical,
professional and reasonable in their conduct of debt collection. The requirements also recognise the
arrangement of rendering the service of debt collection agency.

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Response to submission on Consumer Credit Act: Consultation Paper Part 2

64 CCOBTF’s Response
a) The views submitted will be considered in finalising the requirements in this area in
the Conduct Handbook for reference and future practices.

b) CPs will be responsible in ensuring their appointed DCAs adhere to the professional
standards and conduct requirements provided in the CCA and the Conduct
Handbook. Nonetheless, DCAs which are registered with the CCOB as a CSP will
be subjected to appropriate action if they conduct themselves in an unfair or
unprofessional manner.

c) Further work will be undertaken by CCOB to understand the range of practices

within the non-bank sector to inform more detailed requirements that may be
included in the Conduct Handbook where appropriate policy interventions can be
considered.

Financial Hardship Relief11

The Task Force would like to seek views, especially from credit providers on the
requirements for relief from financial hardship. Please supplement your feedback with
relevant rationale.

65 Majority of the respondents are agreeable with the proposal save for a remark that the
requirement to provide a dedicated relief for the vulnerable credit consumers facing
financial hardship would increase resources needed and possible dispute or legal
challenges in the event of any disagreement on credit arrangements provided.

A concern from the Islamic finance fraternity was raised on the term “repayment” that
was used in the CP2 for the financial hardship provisions and suggested for the term
“payment” to be used instead. For information, in Shariah, credit obligation stems from
the benevolent loan contract i.e. qard structure that entails in repayment – whereas
debt obligations arising from other sale-based Islamic financing structures such as
tawarruq and murabahah entails “payment” as instalments for settlement of the credit
sale, and technically not a “repayment”.

66 CCOBTF’s Response
While the CCOBTF recognises that additional work and resources are needed to meet
this requirement, we will consider these issues and would like to reiterate that such a
requirement enables a fair credit environment for all parties and foster greater
confidence of the credit industry in the long run.

11 In cognisance of dire circumstances (financial hardship) that may affect the ability of a credit consumer to meet
his credit obligation, a CP or CSP must provide flexibilities for the credit consumer to vary his credit agreement.
In ensuring effective reach out for the consumers seeking assistance, the CP or CSP should also provide a
dedicated contact point and inform them of the availability of redress avenues should the application is
rejected, or agreement is not reached between the CP/CSP and the consumers.

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Response to submission on Consumer Credit Act: Consultation Paper Part 2

Others
67 In addition to the above areas, respondents also provided comments pertaining to
enforcement. It was opined that enforcement actions should be efficient, fair and
transparent with information on all enforcement actions be made available in the public
domain.

68 To avoid regulatory burden, RSAs must collaborate and coordinate with each other
towards streamlining laws and requirements. For example, the non-banks should
similarly comply with the anti-money laundering requirements. Reporting requirements
should not be duplicated and instead be centralised. In this regard, respondents raised
the critical need for the establishment of a centralised credit data repository for the non-
bank CPs akin to the current CCRIS. Collaborative initiatives between the CCOB and
industry players is also crucial in areas such as cybersecurity, human capital, consumer
education and awareness.

69 Respondents representing the legal profession emphasised the importance of having

a good dispute resolution framework for the credit consumers. It was also highlighted
that the length and costs involved in current legal proceedings do not commensurate
with the recovery intended. This is especially for high-risk loans below RM100,000 of
which bankruptcy action is not applicable.

70 CCOBTF’s Response
The CCOB will work towards streamlining requirements to avoid/minimize duplication
as well as additional operational costs/ regulatory burden when it comes to reporting/
compliance requirements including the banks. However, it is worth to highlight that the
modus operandi of banks and non-banks is not similar and therefore requirements must
be contextualised to the specific sector.

71 With regard to enforcement actions, the CCOB will take action against breaches under
the CCA and publish such actions either via the CCOB’s website or any other applicable
public means. The CCOB’s direct regulatory reach is to its licensed and registered
entities.

72 Under the proposed regulatory framework, CPs are expected to submit their credit data
to CCRIS through a preferred credit reporting agency. This would be an interim
approach to manage data and technology risks before considering integration of the
credit reporting industry.

73 The CCOBTF applauds and will continue to support industry efforts to initiate and drive
all collaborative efforts for a healthy development of the industry.

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Response to submission on Consumer Credit Act: Consultation Paper Part 2

D. Hire Purchase12
During the consultation period, feedback was received from ten respondents comprising
hire purchase providers and relevant associations on Section 2 (Hire Purchase Financing)
of the CP2. Feedback was also received from hire purchase providers during the industry
townhall sessions held in April 2023. The queries and respective responses are as ensued.

Pricing of hire purchase loans following amendments to the Hire

Purchase Act 1967 provisions

74 Guidance and clarification were sought from the CCOBTF with regard to the following
areas:
a) Methodology on the calculation of the Rule of 78 method. Industry players
suggested for clear guidance be provided to the industry on the formula and
calculation.
b) Justification on the imposition of maximum Effective Interest Rate (EIR) threshold
at 17% p.a. and clarity on the benchmarking conducted with regard to the rate
threshold. Industry players requested for further example on the derivation of the
said EIR.
c) Interest rate basis – whether it is to be charged on daily rest or monthly rest basis.
d) Computation of the monthly instalment and whether any formula will be provided.
e) Whether the monthly instalment will be fixed for the entire loan tenure or vary upon
any prepayment paid.
f) Acceptance of prepayment or lump sum payment and the treatment of such
payment.
g) Whether the current definition of Annual Percentage Rate (APR) in the HPA is the
same as the EIR.

75 CCOBTF’s Response
(a) The Rule of 78 method is currently prescribed in the definition of ‘statutory rebate’
under section 2(1) of the HPA, which is used to calculate the net balance due when
a borrower chooses to make an early settlement of the hire purchase (HP) loan.
Moving forward, the proposal is to no longer allow the use of Rule of 78 method.
HP providers will only be permitted to offer fixed rate or variable/ floating rate loans
using the reducing balance method. This is similar to the approach used by banks
regulated by BNM that offer housing loans. The revised Sixth Schedule of the HPA
will prescribe the formula for calculation of term charges (interest) for HP loans
offered on fixed or variable/ floating rate based on the reducing balance method.

(b) The maximum rate of 17% is an existing limit for variable rate loans stipulated under
the existing Hire Purchase (Terms Charges) Regulations 2005 (HP Regulations).
EIR is the actual financing cost of a loan. Moving forward, the pricing of HP products
will either be based on variable/ floating interest rate or fixed interest rate. This
interest rate will be charged on the reducing outstanding loan balance. In general,
the pricing will be influenced by the following factors, i.e. individual borrowers’ credit
risk, internal credit policy, cost of funds, expenses and profit margin. Hence, the
EIR imposed on individual borrowers for the same retail loan may differ. For banks

12 Revisions to the Hire Purchase Act 1967 have been proposed to review provisions that are unfair to credit
consumers and to modernise relevant provisions as part of aligning them with current operating conditions and
regulatory developments. Key areas covered by the proposed revisions are the pricing of hire purchase loans
(includes replacing the Rule of 78 method with the reducing balance method and the imposition of maximum
Effective Interest Rate (EIR) threshold at 17% p.a.) and the administration of hire purchase documents
deploying digital mediums.

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Response to submission on Consumer Credit Act: Consultation Paper Part 2

regulated by BNM, the pricing of retail loans is based on a risk-informed approach,

which incorporates the elements of expected loss, funding costs and overhead
costs associated with the retail lending activities.

(c) In view of the feedback received from HP providers seeking further clarification on
how to operationalise the pricing of HP loans using EIR, the relevant authorities will
consider the need for the issuance of new Standards or Guidelines pursuant to the
relevant Acts to serve as clearer guidance to bank and non-bank HP providers.

(d) The proposed amendments to the HPA will only require the offering of fixed rate or
variable rate loans using the reducing balance method and will not prescribe
calculation of interest rates (i.e. based on daily or monthly rest basis).

(e) The revised Sixth Schedule of the HPA will prescribe the formula for calculation of
term charges (interest), which is the reducing balance method where it is at a fixed
or variable/ floating rate. Generally, the monthly instalments for fixed rate loans will
be fixed throughout the loan tenure while monthly instalments for variable/ floating
rate loans will vary according to any upward or downward revisions to the overnight
policy rate.

(f) The proposed amendments to the HPA currently does not prescribe the treatment
for cases where the borrower makes any prepayment or lump sum payment, except
in the event of early settlement. For existing borrowers who make early settlement,
the borrower may receive a statutory rebate for term charges based on the Rule of
78 method of calculation, as currently prescribed under the HPA.

(g) Moving forward under the revised HPA, the statutory rebate definition will be
removed as all hire purchase loans will be using the reducing balance method.
Under the reducing balance method, there is no rebate for term charges during
early settlement as the outstanding amount financed to be settled by the borrower
consists of only the principal amount outstanding. This is different from the Rule of
78 method where the outstanding amount to be settled upon early settlement
comprises of both the principal amount outstanding and term charges that has not
been earned by the HP provider. This unearned term charges needs to be returned
to the borrower in the form of a rebate and it arises due to the way the term charges
is calculated under the Rule of 78 method, i.e., calculated upfront on the initial
principal amount over the entire tenure of the hire purchase loan.

(h) In relation to the treatment of prepayments, HP providers are encouraged to

establish their own specific approach on whether prepayments will be permitted
and the entailed details including the treatment of the said payments (either
deduction of the payment from the principal loan amount or from future monthly
instalments). Such treatments and its implications should also be clearly disclosed
to the borrower at the point of onboarding.

(i) Notwithstanding the above, these matters will be further assessed in view of similar
feedback received on the need for the regulators to provide further guidance on
these areas to ensure consistent and fair implementation by the industry once the
amendments to the HPA comes into effect. As a matter of practice, such
operational guidance or expectations can be issued as new Standards under the
HPA/ CCA, or relevant Acts administered by BNM (for licensed banks and
prescribed development financial institutions).

(j) In the revised HPA, the term ‘Annual Percentage Rate, APR’ will be removed and
replaced with the term ‘Effective Interest Rate, EIR’.

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Response to submission on Consumer Credit Act: Consultation Paper Part 2

Administration of Hire Purchase documents

76 The industry also raised the following queries with regard to the administration of HP
agreements:
a) Given that the HPA requires the delivery of the hardcopy agreement to the hirer and
guarantor within 21 days, clarity was sought with respect to paragraph 20.9(b) of
the CP2 as to whether delivery of the softcopy agreement to the hirer and guarantor
is allowed, rather than the hardcopy.

b) While the industry players are agreeable with the adoption of technologies in
signatures, however, they wish to understand the rationale in stating 2 different
types of signatures (i.e. digital signature and electronic signature).

77 CCOBTF’s Response
a) Section 5 of the HPA currently requires a copy of the HP agreement to be served
on the hirer and guarantor within 21 days. However, it does not prescribe the
method for delivery. The method of delivery is prescribed under section 43 of the
HPA. Proposed amendments to section 43 aims to allow the delivery of notices or
documents, which includes the HP agreement, by telegram, facsimile transmission
or by any other electronic or other means of transmission which results in the notice
or document being transmitted in writing for faster delivery of important updates to
borrowers.

b) The proposal on the adoption of technologies for signing HP agreements is split into
two parts: (i) the use of digital signatures to execute HP agreements; and (ii) the
use of e-signatures for variation of HP agreements. There are some distinct
differences between a digital signature and an e-signature. Amongst others, the key
difference is the distinct objective or use of the two types of signatures. A digital
signature verifies the identity of the signer by reference to a public key listed in a
valid certificate. Hence, the use of a digital signature can fulfil requirements of
confidentiality, identity authentication and integrity of information, which are
essential safeguards at the point of signing-up for a hire purchase agreement. In
comparison, an e-signature refers to any letter, character or any other symbol or
any combination created in an electronic form adopted as a signature.

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