FOMCA strongly supports the announcement of Bank Negara’s Governor on the need for the establishment of a Consumer Credit Law in Malaysia.

In the current economic situation, with stagnating incomes and increasing costs of living, consumer face tremendous financial pressures affecting their personal, family and work life. Much too often consumers, especially from the low and middle income, need to borrow to face their financial hardships. Bank Negara had reported that 76% of Malaysian consumers would find it difficult to raise RM 1,000 of emergency cash if they had to. In a study by a Universiti Putra Malaysia in a public housing area in Kuala Lumpur focusing on young workers in the age range of 20 to 40, some of the problems faced by young workers and their families were late bill payments (89%), not enough money for medicines (61%), borrowing from family and friends (55%), lack of 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%). Indeed many young workers and young families, especially from the low and middle income families were facing serious financial problems. From financial problems, this further led to depression (57%) and having regular arguments with their spouses (57%).  Often, in fact too often, consumers are forced to borrow to face their financial issues.

Currently, they can borrow from banks, regulated by Bank Negara Malaysia, money lenders or pawn brokers, regulated by the Ministry of Housing, or purchase on hire-purchase terms, regulated by the Ministry of Domestic Trade and Consumer Affairs.When borrowing is not possible from the registered financial institutions for various reasons, consumers often borrow outside the system from law sharks and other unregistered entities.  This often results in serious detriment and harm to consumer protection and consumer welfare.Although the services provided by registered lenders do help borrowers to temporarily solve their financial problems, there is an urgent need to impose safeguards for such transactions and to protect borrowers.

Of particular to concern to FOMCA, are major retail chains which sell their furniture and other major items, with the promotion of low weekly/monthly payments. However, if the interest rate is computed, consumers are being charged an exorbitant rate.  What is particularly unfortunate, is that many of the affected consumers are from the low-income category who are attracted by the low payment rates. There is currently no legislation to protect consumers and the agency responsible for protecting consumers from extravagant interest rates has failed to act to protect consumers. Without a comprehensive Consumer Credit Law, where interest rates are not only regulated but enforced, the poor consumers will continue to suffer.

Through the Consumer Credit Act, Malaysians could be transparently informed of the true annual percentage rates (APR) or effective interest rates of their financing or purchases.There should also be the realigning of the regulations on consumer credit between the government agencies to ensure that interest rates are fair and reasonable  and further to ensure that consumers are aware of the interest they are paying to creditors.The Consumer Credit 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 issues of repossession. Further, there must be truth in advertising and marketing practices. Finally, he Act should give more powers to law enforcement agencies in dealing with credit providers.

FOMCA further suggests that the Consumer Credit Law be placed under the jurisdiction of Bank Negara Malaysia. It is felt that Bank Negara has the greatest fitness and competency in implementing and enforcing fair interest rates.In this challenging economic times, when consumers are facing severe pressures due to the increasing costs of living, and often resulting in them being forced to borrow to face various personal and family financial challenges, at the very least, the Consumer Credit Act will provide them some protection against unscrupulous lenders, who are ever willing to take advantage of consumers in their vulnerable state.

Datuk Dr Paul Selvaraj

Chief Executive Officer

Federation of Malaysian Consumers Association