Law to protect borrowers from lenders


THE Federation of Malaysian Consumers Associations (Fomca) strongly supports the announcement by Bank Negara governor Datuk Nor Shamsiah Mohd Yunus on the need for the establishment of a Consumer Credit Law in Malaysia.

In the current economic situation, with stagnating incomes and rising cost of living, consumers face tremendous financial pressures.

Much too often consumers, especially low and middle-income earners, need to borrow because of financial hardships.

Bank Negara had reported that 76% of Malaysian consumers would find it difficult to raise RM1,000 of emergency cash if they had to.

In a study by Universiti Putra Malaysia in a public housing area in Kuala Lumpur focusing on young workers in the 20 to 40 age range, some of the problems they faced were late bill payments (89%), not enough money to

buy medicine (61%), borrowing from family and friends (55%), insufficient cash to face emergencies (58%), inability to pay instalments (56%), not enough money to buy basic food items (49%) and borrowing from loan sharks (22%).

Currently, consumers can borrow from banks, moneylenders or pawnbrokers or buy on hire-purchase terms.

Although the services provided by registered lenders do help borrowers to temporarily solve their financial problems, there is an urgent need to impose safeguards to protect consumers.

Of particular concern are retail chains which sell furniture and other major items based on low weekly/monthly payments. However, consumers are being charged an exorbitant rate.

There is currently no legislation to protect consumers and the agency responsible has failed to protect them too.

Without a comprehensive Consumer Credit Law, where interest rates are not only regulated but enforced, consumers will continue to suffer.

Through the Act, Malaysians could be transparently informed of the true annual percentage rates or effective interest rates of their financing or purchases.

There should also be the realigning of regulations on consumer credit between the government agencies to ensure that interest rates are fair and reasonable and consumers are aware of the interest they are paying to creditors.

The Act should be enacted for the protection of consumers. Most importantly, the Act should state the limits regarding the calculation on interest rates, including late payment interest rates and any other payments. The Act should also provide strict guidelines regarding debt collection and repossession.

Further, there must be truth in advertising and marketing practices. Finally, the Act should give more power to law enforcement agencies in dealing with credit providers.

Fomca suggests that the Consumer Credit Law be placed under the jurisdiction of Bank Negara as it has shown the greatest competency in implementing and enforcing fair interest rates.

The Act will give borrowers some protection against unscrupulous lenders who are ever willing to take advantage of consumers in their vulnerable state.

DATUK PAUL SELVA RAJ

Chief executive officer, Fomca

Consumer Credit Law