REGULATION OF

CONSUMER CREDIT
TRANSACTIONS
Consumer law
Consumer credit
◦ Consumer credit law is a branch of commercial law.
◦ Credit is a money lending service provided by a creditor to a debtor who pays for it in the
form of interest.
◦ As the cost of living in daily life has increased there will certainly be a need to borrow
money. there should be safeguards for such transactions-inequality of bargaining
power between the two parties
◦ This is due to the fact that there are lenders who take advantage of the borrowers,
especially the desperate ones. This situation has urged demands to enhance
protection under the consumer credit laws.
◦ Include hire purchase, money lending, credit sales (e.g. Courts Malaysia, Singer,
etc), pawnbroking, cooperative loans, credit cards and personal loans.
Consumer credit regulations
◦Financial Services Act 2013
◦Moneylenders Act 1957 (Amendment 2003)
◦Pawnbrokers Act 1974 (Amendment 2003)
◦Hire-Purchase Act 1967
◦Hire-purchase (Amendment) Act 2010
◦Co-operatives Societies Act 1993
◦Consumer Protection (Credit Sale) Regulations 2012

◦Note: in the UK consumer Credit Act 1974 & 2006

Pawnbrokers Act 1972
◦ Pawnbroking is a transaction where a pawner" surrenders a pledge'
to the pawnbroker as security for a cash loan. The pawnbroker is
entitled to hold the pledge until the pledge is redeemed or
repurchased.
◦ In Malaysia, pawnbroking transactions are governed by the
Pawnbrokers Act 1972. The Act came into force on 2 January 1973.
Generally, the purpose of the Act is to standardise the law of
pawnbroking in this country and its provisions are to be read
together with the Pawnbroking Rules 1972.
Pawnbrokers Act 1972
◦ The Pawnbrokers Act was amended by the Pawnbrokers (Amendment) Act
2003 (Act A1209). The amendments came into force on 1 January 2004 and
the principal Act was amended:
◦ The long title: An act for the regulation and control of the business of pawn
broking, the protection of pawners and pledges pawned in course of such
business, and matters connected therewith.
◦ -clearly shown the intention of the legislature to improve the protection for
pawnbroking transactions. Section 3( I) was amended where the maximum
amount of pawnbroking transaction covered by Act is now RM 10,000 instead
of RM5,000.
Pawnbrokers Act 1972
It not only increased the loan amount that could be given to the
pawner, but it also gives better value to the pledge.
the amendment has widened the application of the Pawnbrokers Act
and its protection.ex: the minimum age for the pawner is now
changed from 16 to 18 years old-it would have been unsuitable to
allow a 16 year-old to pawn articles in a pawnshop
Pawnbrokers Act 1972
◦ It has introduced new provisions relating to investigation, search, and arrest. These powers are :about the
power to investigate complaints and inquire into information. Any complaint relating to committing of an
offence under this Act may be made orally or in writing to an Inspector’s or police officer" .
◦ Section 34B deals with the powers of an Inspector or police officer in carrying out investigations. -
important for them to acquire information.
◦ Section 34C - the power to examine persons.
◦ Under s 34D, a Magistrate may issue a warrant authorising an Inspector or police officer to enter any
premises and if the Inspector or police officer in any circumstances has reasonable cause to believe that
by reason of delay in obtaining a search warrant, the investigation would be adversely affected, they may
enter the premises as if they were authorised to do so by a warrant issued under s 340.
◦ Section 34F deals with the seizure of moveable property.
amendments
◦ It will be an offence for any person who purchases or attempts to purchase any
pawn-ticket. Such offence shall be liable on conviction to a fine not exceeding
RM20,000 or to imprisonment for a term not exceeding 12 months.
◦ Despite the amendments pawnbroking transactions still has the highest interest
rates compared to other consumer credit transactions.
The Moneylenders Act 1951
◦ The Moneylenders Act 1951 (Act 400) is modeled upon the English Moneylenders Act 1900 and 1927.
◦ applies only to the States of West Malaysia.
◦ The Ministry in charge of the enforcement of the Act is the Ministry of Housing and Local Government.
◦ Moneylenders (Amendment) Act 2003 came into force on 1 November 2004. Act A 1193 has introduced
new provisions regarding investigation, search and also evidence.
◦ Amendments to Act 400 were introduced just after the amendments to the Pawnbrokers Act were made
and the purpose of the amendments are almost similar, that is to strengthen the existing laws by way of
licensing and enforcement.
◦ the long title for the Moneylenders Act 1951 was also amended by substituting for the long title An
Act for the regulation and control of the business of moneylending, the protection of borrowers of
the monies lent in the course of such business, and, matters connected therewith.
The Moneylenders Act 1951
◦ s 29B(I), any moneylender who harasses or intimidates a borrower shall be guilty of an offence under the
Act and shall be liable to a fine not exceeding RM 1,000 or to imprisonment for a term not exceeding 15
months or to both, and in case of a second or subsequent offence, shall also be liable to whipping in
addition to such punishment.
◦ s 29B applies not only to licensed moneylenders but also to unlicensed moneylenders. Ex Along/ ah long
Pawnbrokers Act 1972 & Moneylenders
Act 1951
◦ The amendments were made to strengthen the regulation and control for both transactions by way of
licensing, law enforcement powers and also the law regarding evidence in trial.
Hire-Purchase Act 1967
◦ Hire-Purchase is the most important branch of consumer credit.
◦ Malaysia did not have any local legislation which regulates this branch of consumer credit until 11 April
1968, when the Hire-Purchase Act 1967 came into force."
◦ clearly sets out the process of hire-purchase transactions from the beginning to the end.
◦ However, it only applies for the goods stated in the First Schedule. The goods which are not within the
First Schedule are governed by common law, which is usually based on freedom of contract.
Hire-Purchase Act 1967
◦ First Schedule" clearly shows that the Act is meant to protect the consumers. (although certain non-
consumer items such vehicles and buses were also included).
◦ Since common law is based on freedom of contract, the terms of the contract could be prejudicial to the
hirer.
◦ *It would be better if the protection under the Hire-Purchase Act could be extended to those transactions
involving entrepreneurs who run small businesses. This is because they may need to enter into hire-
purchase transactions to acquire goods such as refrigerators, photocopy machines and other types of
machines.
Hire-Purchase (Amendment) Act 2004
◦ The Hire-Purchase Act was amended by the Hire-Purchase (Amendment) Act 2004 (Act A1234)-came into force on
15 April 2005.
◦ The amendment Act introduced a new method of terms charges, which is by way of variable terms rate. Under the
new amendment, an owner shall provide an option to the hirer for the terms charges under a hire-purchase agreement
to be either at a fixed rate or at a variable rate.“
◦ A variable rate of terms charges shall be quoted at a margin percentage above the base lending rate."
◦ s 4C(lB) if in the hire-purchase agreement the terms charges are at a variable rate, the following items shall be
specified in the hire-purchase agreement:"
◦ (i) the number of instalments to be paid under the agreement by the hirer;
◦ (ii) the amount of each of these installments;
◦ (iii) the annual percentage rate of terms charges which shall be calculated in accordance with the formula set out in
the Seventh Schedule; and
◦ (iv) the balance originally payable under the agreement.
Hire-Purchase (Amendment) Act 2004
◦ The owner may revise the base lending rate at any time during the continuance of the agreement."
◦ Where the owner has revised the base lending rate, the rate and total amount of terms charges and the
amount of each instalment or the number of instalments under the hire-purchase agreement shall be
revised accordingly."
Hire-Purchase (Amendment) Act 2004
◦ The introduction of variable term charges is something new to the hire-purchase industry in Malaysia."
◦ The decision as to whether to opt for traditional fixed rate term charges or a new variable term charges is
in the hands of the hirer. However, the hirer should be aware of the danger of such variable term charges
as it could trap them financially if the base lending rate increases rapidly."
◦ the Hire-Purchase (Terms Charges) Regulations 1968: the terms charges in relation to a hire-purchase
agreement shall not exceed 10% per annum in respect of all goods specified in the First Schedule."
i.e.that although the hirer chooses to opt for variable term charges, he is still protected under the Hire-
Purchase (Terms Charges) Regulations 1968.
Financial Services Act 2013
◦ The need to protect financial consumers becomes more important as financial markets become complex
and financial products and transactions entail serious, long-term financial consequences
◦ The aftermath of the global financial crisis saw an overhaul in financial regulations that included specific
focus on safeguarding financial consumers.
◦ At the global level, initiatives were taken by the OECD and World Bank to develop guidelines and
principles related to financial consumer protection.
◦ The High Level Principles on Financial Consumer Protection published by the OECD in October 2011 &
A more detailed guideline entitled Good Practices for Financial Consumer Protection was published by
the World Bank in 2012
Information Disclosure and Protection
◦ important aspect of the consumer protection framework!
◦ Information asymmetry between the consumers and FSPs gives the latter the upper hand in dealings and
results in the inequality of bargaining powers.
◦ consumers are not able to make rational finance decisions without having access to adequate and relevant
information.
◦ To ensure the optimal amount of information, regulations should cover two features: I mandatory
disclosure to protect the welfare of customers & II to control the supply of false or misleading
information
Complaints and Redress
◦ There should be efficient and effective mechanisms in place to redress complaints and disputes.
◦ Although consumers have the option of going to court in case of mal-practice, engaging in litigation with
large corporations is not a viable option as it is troublesome, costly, and burdens are vastly
◦ Since consumers are reluctant to seek justice if redress is complicated and expensive to obtain,
complaints and redress avenues must be affordable, convenient, and effective.
FINANCIAL SERVICES ACT 2013
◦ Financial Services Act 2013 governs the banking and insurance industry, the payments system, and
foreign exchange matters.
◦ The Act is a comprehensive legislation with the primary aim of promoting financial stability and to
ensure, among other things, the fair, responsible, and professional business conduct of financial
institutions. It also strives to protect the rights and interests of financial consumers.
 Business conduct, Standards on
complaints, disputes business conduct
PART VIII BUSINESS CONDUCT AND
CONSUMER PROTECTION

Payment of policy moneys under

life policy and personal accident
Insurance issues
policy
Prohibited
business conduct

Information and
secrecy
Restriction on inquiring
Permitted
specifically into affairs of
disclosure
particular customer
secrecy
 Secrecy 133

No person who has access to any document or information relating to the

affairs or account of any customer of a financial institution, including—
(a) the financial institution; or (b) any person who is or has been a director,
officer or agent of the financial institution, shall disclose to another person
any document or information relating to the affairs or account of any
customer of the financial institution.

Restriction on inquiring
specifically into affairs of
particular customer

132 (1) Nothing in this Act shall— (a) authorize the Minister to direct the Bank; or (b)
authorize the Bank, to inquire specifically into the affairs or account of any customer
of any authorized person. (2) Notwithstanding paragraph (1)(b), the Bank may inquire
into the affairs or account of a customer of an authorized person for the purposes of
exercising its powers or functions under this Act, the Islamic Financial Services Act
2013 or section 47 of the Central Bank of Malaysia Act 2009.
CO-OPERATIVE SOCIETIES ACT
1993 (ACT 502)
◦ Co-operatives were first introduced in Malaysia by British colonial masters.
◦ It naturally has had an impact on the Malaysian economic development.
◦ a co-operative can be described as a non-governmental, independent, autonomous organization with
democratic structure which has been promoted by their own members on their free will to meet their
social and economic needs.
CO-OPERATIVE SOCIETIES ACT
1993
◦ Historical- in Co-operative Societies Act 1948, (Act 287) and rules and regulation, co-operative was
defined as “a society with the objective of promoting the economic interest of its members in accordance
with co-operative principles”.
◦ In the amended Co-operative Societies Act 1993 (Act 502), co-operative is defined as an organization
formed and owned by a group of individuals for the purpose of improving their participation in economic
and social activities of its members, based on the co-operative principles.
CO-OPERATIVE SOCIETIES ACT
1993
◦ Credit and banking co-operatives played the most active function contributing to co-operatives turnover.
◦ The biggest contributor to the financial strength of the movement is Bank Kerjasama Rakyat Berhad
(Bank Rakyat).
◦ other types of co-operatives are the services, agriculture, housing, industry, construction and transport co-
operatives.
CO-OPERATIVE SOCIETIES ACT
1993 (ACT 502)
◦ Amendments in 2007 & 2018
◦ “A co-operative society which consists of individual persons only and which has as its object the
promotion of the economic interest of its members in accordance with co-operative principles ….”
◦ application and registration need to be approved by Malaysia Co-operative Societies Commission’s
executive Chairman
issues
 Lending facilities -should give detailed loan accounts that the layman can understand;
 need provisions that stop consumers from losing out when collateral or repossessed goods
have been auctioned;
 Making early loan repayment should be worthwhile for consumers; and
 Having heavier penalties for banks and repossessors that do not follow the law in the process
of repossessing motor vehicles.
July 2019 -proposed consumer
protection Act
◦ “The Act is important because its intention is to ensure that credit consumers receive a fair
service when dealing with creditors.
◦ At National Financial Literacy Strategy 2019-2023, former PM:
◦ “the efforts to increase financial literacy is extremely important and will complete the
Consumer Credit Act initiative to strengthen the protection framework for credit
consumers in Malaysia”
Latest development
◦ ONE of the most important announcements from Budget 2021 is the formulation of a Consumer Credit
Act aimed at providing a regulatory framework for the issuance of consumer credit and strengthening the
supervision of non-bank credit providers.
◦ Fomca (Federation of Malaysian Consumers Associations) has long advocated for this Act to enhance
consumer protection in the financial sector.
◦ After the Act is formulated, it is hoped that it would be enforced by Bank Negara Malaysia and the
Securities Commission.
◦ Three credit forms that are of great concern to Fomca are hire purchase, money lending and pawn shops.
The Hire Purchase Act is under the jurisdiction of the Domestic Trade and Consumer Affairs Ministry
while the Moneylenders Act and Pawnbrokers Act are both under the Housing and Local Government
Ministry.
◦ There is an urgent need to effectively regulate the interest rates and trade terms of non-bank institutions
that provide credit to consumers. Very often, the interest rates are exorbitant while the contractual terms
are severely unfair to consumers.
◦ Through the Consumer Credit Act, Malaysians could be informed of the true annual percentage rates
(APR) or effective interest rates of their financing or purchases.
◦ The regulations on consumer credit should also be realigned to ensure that interest rates are fair and
reasonable and consumers are aware of the rate they are paying to their creditors.
◦ Credit sale is another form of unregulated consumer credit that is of great concern. This facility is offered
by some large retail outlets of consumer durable goods such as furniture and household electrical and
electronic products.
◦ Consumers are required to pay in weekly or monthly instalments for a long period of time. The weekly/monthly
sum may look small but if the instalments are added up, the amount being paid is extremely exorbitant.
◦ What is particularly unfortunate is that many consumers are from the low-income category who are attracted by
the low payment rates. Without a comprehensive Consumer Credit law, where interest rates are not only
regulated but also enforced, these consumers will continue to hold the short end of the stick. Most importantly,
the Act should state the limit on calculation of interest rates, including late payment interest rates and any other
payments.
◦ The Act should also provide strict guidelines on debt collection and repossession, and advertising and
marketing practices must be transparent.
◦ Finally, the Act should accord law enforcement agencies more power to deal with credit providers.
◦ In these challenging economic times when consumers are faced with severe pressure due to job loss, reduction
in income and increase in cost of living, which often force them to borrow to make ends meet, the Consumer
Credit Act would provide some protection against unscrupulous lenders.
Current issues
 Banks and repossessors circumventing the law in the repossession of motor vehicles under hire
purchase transactions;
 Bankers selling investment-linked insurance without explaining that the bulk of the money
(usually taken from fixed deposits) will be used for the insurance part;
 Unwittingly borrowing from the Ah Long, believing that they are licensed money lenders; and

◦ Not being able to pay off loans according to schedule because of skewed interest rate
calculations
Suggestion for improvements in
consumer credit Act
 Lending facilities should give detailed loan accounts that the layman can understand;
 Having provisions that stop consumers from losing out when collateral or repossessed goods
have been auctioned;
 Making early loan repayment worthwhile for consumers; and
 Having heavier penalties for banks and repossessors that do not follow the law in the process
of repossessing motor vehicles.