Sneak Peek: Malaysia’s Proposed Consumer Credit Act

On 4 August 2022, the Consumer Credit Oversight Board Task Force supported by the Ministry of Finance, Bank Negara Malaysia (‘BNM’) and the Securities Commission Malaysia (‘SC’), issued a Public Consultation Paper (Part 1) (‘CP1’) seeking feedback and comments from the public on the proposed Consumer Credit Act (‘CCA’) to consolidate the credit industry regulatory framework. This initiative was first announced by the Minister of Finance during the 2021 Malaysia Budget Speech.1
 
This article will provide an overview of the proposals set out in CP1 in relation to the CCA.
 
Objectives of the CCA
 
The CCA seeks, amongst others, to: 
  1. establish an authorisation framework for non-bank entities carrying on the business of providing credit and credit services; 

  2. provide a comprehensive and consistent framework for credit consumer protection through the imposition of minimum standards of conduct on credit providers and credit service providers; 

  3. establish an effective surveillance, supervision and enforcement framework to deter and reprimand unfair, unethical and predatory practices; and 

  4. ensure effective coordination among the Regulatory and Supervisory Authorities (severally an ‘RSA’ and collectively ‘RSAs’) in delivering better consumer outcomes through the formation of a high-level Council for Consumer Credit Malaysia. 
The CCA aims to reduce harm to credit consumers by: 
  1. holding credit providers and credit service providers to consistent and high professional standards in their dealings with the public; 

  2. preventing predatory practices including the offering of consumer credit products which exploit uninformed and vulnerable credit consumers; 

  3. promoting clear, accurate, consistent, and timely disclosures of information to credit consumers for decision-making; 

  4. requiring credit providers to observe responsible lending standards including performing credit checks and affordability assessments; and 

  5. prohibiting practices that are inherently unfair to credit consumers, such as engaging in deceptive conduct to mislead or adopting abusive practices to intimidate borrowers when pursuing debt collections.
Key areas of consumer protection under the CCA will include: 
  1. prohibited business conduct; 

  2. advertisement and solicitation; 

  3. credit agreement; 

  4. financing charges; 

  5. credit assessment; 

  6. debt collection and repossession of goods; and 

  7. relief from financial hardship. 
Protected entities
 
A person will be accorded protection under the CCA if that person falls within the definition of a ‘credit consumer’. CP1 proposes to define a credit consumer in the CCA as follows: 
  1. an individual who obtains, has obtained or intends to obtain, credit from a credit provider, wholly or predominantly for personal, domestic or household purposes; 

  2. a person who is a small or micro enterprise2 who obtains, has obtained or intends to obtain credit from a credit provider, not exceeding an amount of RM500,000; 

  3. any other person or class, category or description of person as may be prescribed by the Minister of Finance; or 

  4. an individual who acts as a guarantor, not for the purpose of making profit, to a credit consumer under paragraphs (a), (b) or (c) in respect of a credit agreement to which the CCA applies. 
Authorisation framework
 
As mentioned earlier, the CCA will establish an authorisation framework for non-bank entities that provide credit or credit services. The regime will require entities that are directly providing credit to credit consumers to be licensed under the CCA and those providing services to credit providers or credit consumers to be registered.
 
The businesses that will be required to be licensed or registered under the registration framework in Phase 1 of the implementation of the new consumer credit regime are as follows: 
  • licensing - buy now pay later (‘BNPL’) business3, factoring business4 and leasing business5; and 

  • registration – impaired loan buyer (‘ILB’) business6 and debt collection agency (‘DCA’) business7
As the CCA is intended to safeguard persons that fall within the definition of ‘credit consumer’, CP1 proposes that credit providers who only serve a niche market of consumers falling outside the definition of ‘credit consumer’ be exempted from the authorisation framework. Instead, it is proposed that such niche players provide an attestation to the CCOB that their business model does not include activities extended to ‘credit consumers’, as defined, and a commitment to seek authorisation if or when their circumstances change.
 
Implementation
 
The Consumer Credit Oversight Board (‘CCOB’) will be established as the competent authority to regulate non-bank entities that provide credit or credit services. The assumption by the CCOB of its regulatory powers will be carried out in phases as described below. To achieve the objectives of the CCA, the CCOB will be conferred powers to issue standards.
 
The new consumer credit regime will be implemented in three phases.
 
Phase 1 (upon enactment of the CCA)
 
Upon the enforcement of the CCA, the CCOB will be the competent authority to oversee credit providers and credit services providers that are currently unregulated by any RSA. These entities are identified in CP1 as BNPL, ILB, DCA and non-bank factoring and leasing companies.8
 
During this phase, the RSAs that currently regulate or supervise any credit providers and credit services providers will continue to discharge that role and give effect to the applicable provisions of the CCA. These RSAs include BNM, SC, Malaysia Co-operative Societies Commission (SKM), Ministry of Domestic Trade and Consumer Affairs (‘KPDNHEP’) and Ministry of Housing and Local Government (‘KPKT’).
 
The Hire-Purchase Act 1967 will be updated during Phase 1 but KPDNHEP will remain as the RSA for all non-bank hire-purchase companies, repossession agents and credit sales providers under this phase.
 
Phase 2 (by 2025)
 
The KPDNHEP and KPKT will transfer their regulatory functions over consumer credit activities to the CCOB. To achieve this, the Moneylenders Act 1951, Pawnbrokers Act 1972 and the provisions relating to credit sales transactions under the Consumer Protection Act 1999 will be repealed and the CCA will be amended to incorporate the relevant provisions of these Acts as an amalgamated legislation.
 
However, BNM, SC and SKM will continue to be the RSA for the entities under their respective purview.
 
Phase 3 (after 2030)
 
For the next five to ten year period, further enhancements to existing structures for the conduct regulation of all financial firms will be considered. This may include adopting a ‘twin peaks’ approach to financial regulation similar to that adopted by the United Kingdom and Australia whereby two distinct and separate authorities are responsible for prudential and conduct regulation and supervision of financial services respectively. For example in the United Kingdom, the Prudential Regulation Authority oversees prudential regulation, whilst the Financial Conduct Authority oversees conduct regulation.9
 
Deadline for comments
 
The deadline for interested parties and the public to provide feedback and comments to the Consumer Credit Oversight Board Task Force is 5 September 2022.
 
Consultation Paper (Part 2)
 
CP1 is the first of a two-part consultation and the second part is expected to be issued in the fourth quarter of 2022 and will elaborate on the authorisation framework and the requirements and standards for credit providers and credit service provides.
 
Comments
 
CP1 is to be welcomed as it provides an overview of the objectives of the new consumer credit regime, the sectors that will be subjected to the new regulatory framework and the time frame within which the various stages of the new framework are to be implemented. Stakeholders in the affected sectors should prepare themselves to adapt to the imminent change in the regulatory landscape to which they are presently subject.
 
Article by Francine Ariel Paul (Senior Associate) and Faith Chan (Associate) of the Corporate Practice of Skrine 
 

1 Paragraph 191, 2021 Malaysia Budget Speech.
2 Based on the Guideline issued by SME Corporation Malaysia (updated: April 2020): (a) a micro enterprise (all sectors) has a sales turnover of less than RM300,000 or less than 5 full-time employees; a small enterprise (manufacturing sector) has a sales turnover from RM300,000 to less than RM15 million or from 5 to less than 75 full-time employees; a small enterprises (services or other sectors) has a sales turnover from RM300,000 to less than RM3 million or from five to less than 30 full-time employees.
3 Refer to page 21 of CP1 for proposed definition of ‘BNPL’ and features of BNPL business.
4 Refer to page 22 of CP1 for proposed definition of ‘factoring’ and features of factoring business.
5 Refer to page 23 of CP1 for proposed definition of ‘leasing’ and features of leasing business.
6 Refer to page 24 of CP1 for proposed definition of ‘ILB’ and features of ILB business.
7 Refer to page 25 of CP1 for proposed definition of ‘DCA’ and features of DCA business.
8 See footnote 13 of CP1.
9 See paragraph 1.16 and footnote 11 of CP1.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.