Friday May 8, 2009
By DALJIT DHESI PETALING JAYA:
The “archaic” Hire Purchase Act is in urgent need of review, especially more so in the current tough economic environment, say consumer groups and economists. Many view the legislation, which is over 40 years old, as among others, imposing additional burden on consumers and defeating the Government’s initiatives in stimulating the ailing domestic economy. Consumers Association of Penang (CAP) president S.M. Mohamed Idris said amendments to the Act were urgently needed as current quoted rates did not reflect real or effective interest rates. S.M. Mohamed Idris … The current quoted interest rate gives the wrong impression.
“Bank Negara should make a ruling that all interest rates quoted for loans should be the effective rates as they reflect the true cost of borrowings,” he told StarBiz.
“The current quoted interest rate gives the wrong impression because the actual interest rate is roughly almost twice that is advertised.” RAM Holdings Bhd chief economist Dr Yeah Kim Leng agrees that the legislation needs to be updated. “We should be looking at enacting competitive laws so that unfair trade practices, including predatory pricing and non market-based price-fixing practices as exemplified by the current situation can be curbed. “We need more consumer activism and education on the one hand, and regulations that promote fair trade practices and market competition on the other hand,” he said.
Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias Alias said the disclosure of effective interest rates would improve information transparency and benefit consumers. By doing that, consumers could clearly see how much they were really paying for their loans, he said. Currently the rates quoted by banks for hire purchase loans are based on flat interest rates and variable rates (the latter will vary according to the movement of the base lending rate).
Most would opt for the flat rates which are based on the non-reducing principal basis. This means the interest charged by the bank on the borrower (based on the original financing amount) remains the same for the whole tenure. Hire purchase transactions are governed by the Hire Purchase Act 1967 and administered by the Domestic Trade and Consumer Affairs Ministry.
An official from the ministry said it was in the midst of reviewing the legislation on hire purchase, but did not specify when it would be completed. “We are looking at some specific areas which may be revised and have consulted our legal advisers on this matter,” said the official, who declined to be named. National Consumer Complaints Centre chief executive Muhammad Shaani Abdullah, who is also Fomca secretary-general, called for the legislation to be abolished.
He said a special law, for example, a Consumer Credit Act, that governed hire purchase, money lending and pawnshop activities under one roof should be introduced instead. “The law should protect consumers and not victimise them for others to profit. It should also limit fancy ways of calculating interest rates,” Shaani added.
Idris of CAP agrees that a comprehensive Consumer Credit Act should cover all credit facilities, saying this meant there would be no need for separate laws on hire purchase. Until then, banks should quote the effective interest rate, and change the calculation of refund for the early repayment of loans and a court order should be required to repossess goods, he said, noting that getting a court order for repossession and quoting effective interest rates by lenders were practised in Britain. On whether the Act should be reviewed, the Association of Banks in Malaysia has this to say: “The Act already contains provisions for the protection of consumers which are well-tested over time. For example, the Second Schedule of the Act requires the financier to provide the borrower with detailed information about the transaction including the term charges and the rate applicable. The Act has been continually reviewed and any further review would be welcomed.”