The second public consultation paper covers the requirements on authorisation, governance and conduct expected of all non-bank credit providers as well as credit service providers which are currently unregulated.
KUALA LUMPUR: In its continuous effort to afford credit protection to individuals as well as micro and small-sized businesses, the Consumer Credit Oversight Board Task Force (CCOB Task Force) has issued its second public consultation paper (CP2), which invites feedback on the proposed regulatory framework for credit businesses and credit service businesses.
The CP2, building on the first consultation paper issued in August last year, covers the requirements on authorisation, governance and conduct expected of all non-bank credit providers as well as credit service providers which are currently unregulated.
This particularly refers to businesses carrying out buy now pay later activities, leasing and factoring services, debt collection agencies, impaired loan buyers and debt counselling and management services.
Affirming the CCOB’s goals, Bank Negara assistant governor and head of the CCOB Task Force Abu Hassan Alshari Yahaya said it was critical that credit providers and credit service providers be regulated and conform to high professionalism or conduct standards.
“We will continue our extensive engagements with the currently unregulated industry and consumers to deliver a practical regulatory response. The aim is to strengthen the protection for consumers while supporting the development of a consumer credit industry that effectively serves the needs of individuals and small businesses,” he told a media briefing.
The scope of CP2 covers proposed key licensing requirements, including minimum financial requirements, governance and syariah requirements for Islamic credit businesses.
For example, companies involved in factoring services would be required to hold a minimum shareholders’ fund of RM2mil, while Islamic credit businesses would be required to have an operational structure and business models based on underlying syariah contracts.
On top of that, the CP2 sets out professional conduct and responsible lending standards that must be met by potential licensees, such as the prohibition of misleading information with regards to credit services offered or the exertion of undue threats and harassment, including the threat of legal proceedings in the process of collection.
Perhaps most importantly, CP2 also covers proposed enhancements to the Hire Purchase Act 1967 (HPA 1967), with the aim of modernising the act and improving consumer outcomes.
The CCOB Task Force especially is seeking feedback on the proposed removal of Rule of 78, which pre-calculates interest charges on hire purchase contracts as such that more interest is paid in the earlier period of the loan tenure, favouring the lender over the borrower for short-term loans or if a loan is paid off early.
Abu Hassan noted that financing methods based on the Rule of 78 can lead to unfair outcomes for borrowers opting for early settlement, suggesting the reducing balance method as an alternative which would see the borrower paying back a larger portion of the principal from the outset.
Meanwhile, the proposed changes to the HPA 1967 also include the acceptance of digital and electronic signatures for hire purchase agreement processes.
The proposals outlined in CP2 also provided further details on the implementation of the Consumer Credit Act (CCA) which is targeted to be enacted by the end of this year.
The CCA will regulate all non-bank credit providers and credit service providers in Malaysia, with the aim to create an orderly, transparent, and fair credit ecosystem to protect credit consumers who are individuals who obtain or seek credit for personal, domestic, or household purposes; and small and micro enterprises with loans up to a certain threshold.
The CCOB Task Force was set up in July 2021 and led by the Finance Ministry, Bank Negara and the Securities Commission to drive the enactment of the CCA, in collaboration with the Domestic Trade and Consumer Affairs Ministry, the Housing and Local Government Ministry, the Entrepreneur and Cooperatives Development Ministry and the Malaysia Co-operative Societies Commission.
