China's Consumer Credit Balance Expected to Exceed 10T Yuan by 2020 | China  Banking NewsWednesday, 11 Nov 2020
ONE of the most important announcements from Budget 2021 is the formulation of a Consumer Credit Act aimed at providing a regulatory framework for the issuance of consumer credit and strengthening the supervision of non-bank credit providers.

Fomca (Federation of Malaysian Consumers Associations) has long advocated for this Act to enhance consumer protection in the financial sector.

After the Act is formulated, it is hoped that it would be enforced by Bank Negara Malaysia and the Securities Commission.

Three credit forms that are of great concern to Fomca are hire purchase, money lending and pawn shops. The Hire Purchase Act is under the jurisdiction of the Domestic Trade and Consumer Affairs Ministry while the Moneylenders Act and Pawnbrokers Act are both under the Housing and Local Government Ministry.

There is an urgent need to effectively regulate the interest rates and trade terms of non-bank institutions that provide credit to consumers. Very often, the interest rates are exorbitant while the contractual terms are severely unfair to consumers.

Through the Consumer Credit Act, Malaysians could be informed of the true annual percentage rates (APR) or effective interest rates of their financing or purchases.

The regulations on consumer credit should also be realigned to ensure that interest rates are fair and reasonable and consumers are aware of the rate they are paying to their creditors.

Credit sale is another form of unregulated consumer credit that is of great concern. This facility is offered by some large retail outlets of consumer durable goods such as furniture and household electrical and electronic products.

Consumers are required to pay in weekly or monthly instalments for a long period of time. The weekly/monthly sum may look small but if the instalments are added up, the amount being paid is extremely exorbitant.

What is particularly unfortunate is that many consumers are from the low-income category who are attracted by the low payment rates. Without a comprehensive Consumer Credit law, where interest rates are not only regulated but also enforced, these consumers will continue to hold the short end of the stick. Most importantly, the Act should state the limit on calculation of interest rates, including late payment interest rates and any other payments.

The Act should also provide strict guidelines on debt collection and repossession, and advertising and marketing practices must be transparent.

Finally, the Act should accord law enforcement agencies more power to deal with credit providers.

In these challenging economic times when consumers are faced with severe pressure due to job loss, reduction in income and increase in cost of living, which often force them to borrow to make ends meet, the Consumer Credit Act would provide some protection against unscrupulous lenders.

Chief executive officer Fomca