Stronger oversight on loans

  • Letters
  • Thursday, 20 Jun 2019

WE refer to the report “Cooperative Commission to investigate scam allegations” (StarBiz, June 11) on the statement by the Malaysia Cooperative Societies Commission that it would investigate allegations that certain cooperatives are involved in a syndicated loan scam, falsifying payslips for civil servants and employees of government-linked companies.

“The scams reportedly also involve loan payouts of only 50% of the amount that was applied for by civil servants with even their ATM cards being confiscated.”

It was reported earlier that the scam allegedly involves the Malay­sian National Cooperative Move­ment (Angkasa) and various individual cooperatives, “Syndicated loan scam” (StarBizweek, June 8).

CAP has highlighted the problem of fraudulent loans under the Angkasa salary deduction scheme for the past 30 years. We have received many complaints about excessive and unfair interest charged by cooperatives that operate sell-and-buy-back loans. We have also come across complaints where the borrowers were approached to take up loans and were given amounts that were more than what they had applied for. Despite our letters and reports on this matter, the Federal government and SKM have failed so far to address the problem and to impose practical reforms on this loan system.

When a civil servant takes up a loan, the monthly repayment will be deducted from his salary and forwarded to the lender. By allowing civil servants to be the target of lenders, the government is doing an injustice to their families. These personal loans that have resulted in hardship were likely to be spent on consumer products and not on necessities.

Even though the loan agreement was signed with the cooperative, the money came from a licensed moneylender. The cooperative was acting as an agent of the moneylender and receiving commissions for signing up borrowers.

The government and SKM need to institute stronger and more effective oversight on “shadow banks”, which are not regular banks but give out loans, as well as on credit cooperatives. Failure to do so would reflect SKM’s inability to effectively regulate these institutions which find civil servants ideal borrowers.

An immediate measure must be implemented to reduce the amount of salary deductions that can be carried out by Angkasa to one-third of the borrowers’ net salary. It is understood that this one-third guideline is used by banks to gauge whether the borrower can keep up with the monthly payments. With two-thirds of the salary available, families would have more money to spend on necessities.

We also note with concern Bank Negara Malaysia’s findings in its Financial Stability Review released last September, as cited in the reports mentioned here, that civil servants spend more than half of their monthly salaries on repaying debts. These high debt levels are even more apparent for those earning less than RM5,000 monthly.

The government must curb the vicious cycle of household debt because of its impact on the economy. The debt burden of low income families often results in them cutting back on essential expenditure like food and health.

Mohideen Abdul Kader

Acting president

Consumers Association of Penang

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