The passing of the Consumer Credit Bill (‘the Bill’) by the Malaysian House of Representatives (Dewan Rakyat) marks a significant development in policy and approach to regulating consumer credit in Malaysia. The Bill does not repeal existing ‘credit legislation’, but supplements these by offering additional protection to consumers entering into credit agreements with credit providers. The scope is broad and includes buy-now, pay-later offers, hire purchase contracts, money lending and pawnbroking agreements. The driver behind this policy shift is the Consumer Credit Oversight Board (‘CCOB’) which has outlined a blueprint on how it envisages the consumer credit landscape will evolve over the short, medium and long term (https://ccob.my/about/).
Regulators
The Bill establishes the Consumer Credit Commission (‘the Commission’) to advise the Government on national policies related to consumer credit and regulation of the credit industry in general for proper conduct and responsible lending practices. In short, the Commission is tasked to oversee the proper implementation of the Bill.
The Commission will co-exist with existing regulators and supervisory authorities (‘RSA’) who will collectively be responsible for the regulating, supervising and ensuring compliance of their respective ‘sectors’ within the credit industry.
The table below summarises the products or services, regulators and pre-existing laws governing these sectors.
| No. | Product/Service | Regulator | Law |
| 1. | Hire purchase | Ministry of Domestic Trade and Cost of Living (Kementerian Perdagangan Dalam Negeri dan Kos Sara Hidup) (‘KPDN’) | Hire Purchase Act 1967 |
| 2. | Credit sale (retail stores offering sales on credit terms) | KPDN | Consumer Protection (Credit Sale) Regulations 2017 (issued under the Consumer Protection Act 1999) |
| 3. | Moneylending | Ministry of Housing and Local Government (Kementerian Perumahan dan Kerajaan Tempatan) (‘KPKT’) | Moneylenders Act 1951 |
| 4. | Pawnbroking | KPKT | Pawnbrokers Act 1972 |
| 5. | Registered cooperative societies offering credit | Cooperative Commission Malaysia (Suruhanjaya Koperasi Malaysia) under Ministry of Entrepreneur Development and Cooperatives (Kementerian Pembangunan Usahawan dan Koperasi) | Cooperative Societies Act 1993
Malaysia Cooperative Societies Commission Act 2007 |
| 6. | Banking loans (conventional and Islamic) | Bank Negara Malaysia (‘BNM’) under Ministry of Finance (Kementerian Kewangan) (‘MOF’) | Financial Services Act 2013
Islamic Financial Services Act 2013 Development Financial Institutions Act 2002 |
| 7. | Peer-to-peer lending / crowdfunding | Securities Commission of Malaysia under MOF | Capital Markets and Services Act 2007
Securities Commission Malaysia Act 1993 |
Once the Bill comes into force, previously unregulated entities will fall under the purview of the Commission.
Regulated Entities
Entities currently offering credit to consumers, i.e. credit providers, will be subject to new regulatory requirements.
Firstly, the Bill establishes entry requirements for credit providers to be licensed. The broad definition of ‘credit business’ (which includes Islamic credit business) and ‘credit providers’ will plug any gaps in unregulated or under regulated credit sectors caused by the recent uptick in lending to consumers, for example the growth in buy-now, pay-later schemes offered over the internet.
The entry requirements imposed on credit providers are also tightened up.
- There are minimum capital requirements to obtain a licence.
- Directors and senior management must satisfy a fit and proper criteria.
- The controller(s) of credit providers must be disclosed to and approved by the regulators.
Key takeaway: All credit providers offering credit to credit consumers must apply for a license within 6 months from the coming into force of the Bill.
Secondly, policymakers have set their sights on improving the regulation of third parties involved in consumer credit, e.g. debt collection agencies and entities that purchase impaired loans, by bringing them under the definition of ‘credit service providers’ and requiring them to be registered first.
In broad terms, the requirements for the two categories (i.e. licensing and registration) appear to be similar. However, RSAs are likely to prescribe different parameters for each category to reflect the different risks posed to consumers.
Thirdly, regulated entities must comply with strict ongoing business conduct requirements such as those listed below.
- Disclosure and transparency to credit consumers of their ‘products’.
- Avoid conduct that is expressly prohibited under the law (e.g. inducement, false statements or misleading advertisements).
- Conduct affordability assessments of credit consumers prior to entering into a credit agreement.
Regulators can impose different or additional requirements on regulated entities by specifying standards applicable to their respective sectors which have the force of law (section 123 of the Bill). This is similar to how BNM issues policy documents applicable to licensed banks and insurers.
Those intending to escape these rules by contract terms, i.e. contracting out of the Bill, are prevented from doing so by operation of section 3 of the Bill.
Compliance & Enforcement
Non-compliances will be subject to regulatory enforcement action or criminal conviction. The former is wide ranging and includes private or public reprimands, orders to do or stop an act, imposing monetary penalties of up to RM500,000 and even taking action against individuals by removing or barring such person from the industry for up to 5 years (section 106 of the Bill). Examples of the Court upholding such actions by regulators are readily available and can be obtained from cases such as Bursa Malaysia Securities v Serba Dinamik Holdings Bhd [2022] MLJU 1999.
Identifying breaches by regulated entities is made easier by requiring an audit to be performed on its credit their compliance level (sections 49 and 66 of the Bill). Whistleblowers have broad protection under the Bill and complaints will be kept confidential (section 120 of the Bill). RSAs in charge of their respective sectors are also given increased supervisory powers and may require documents or information to be produced, which can later be used to take regulatory action or in criminal proceedings. Submitting false information carries criminal consequences.
As a further deterrent, the Bill makes any credit agreement entered between a credit consumer and unlicensed credit provider as unenforceable. This is likely to mean being unable to recover the principal lent under an illegal credit agreement (see Triple Zest Trading & Suppliers & Ors v Applied Business Technologies Sdn Bhd [2023] 6 MLJ 818).
Views
Consumers will enjoy better transparency, protection and relief once the Bill comes into effect. The increased compliance cost to credit providers and credit service providers goes without saying. However, it must be borne in mind that the Bill empowers RSAs with broad examination and enforcement powers. For example, directors and employees may be examined on their compliance level, which can be easily identified from a compliance audit report required under section 49 of the Bill.
Consequences for non-compliance are stringent and can be taken summarily by RSAs themselves. Entities will need to be vigilant at all times and establish proper standard operating procedures to ensure their business operations do not flout the law.
Conclusion
Credit providers and credit service providers must pull their socks up, knuckle down and straighten up their act or face up to the consequences for failing to meet the expectations of regulators.
The silver lining is a generous transition period of 6 months to apply for a license. Alternatively, the business can be restructured and declare to the Commission that its business will not offer credit agreements to credit consumers. False declarations carry criminal penalties and contracts with unlicensed persons are unenforceable. When weighed with the criminal consequences for carrying on business without a licence, the consequences appear dire indeed. The risk of discovery is further heightened by the whistleblower protection provisions in the Bill.
In sum, credit providers and credit service providers should shape up or ship out.
For further advice on this area, please contact Nigel William Kraal at nigelwk@cheangariff.com
Disclaimer: The contents of this write-up is intended for general informational purposes only and does not constitute legal advice.
