Friday, November 18, 2011

Bank Negara's measures to promote responsible financing practices

KUALA LUMPUR (Nov 18): Bank Negara Malaysia has issued guidelines to financial institutions aimed at promoting prudent, responsible and transparent retail financing practices.

The central bank said on Friday the guidelines, which take effect from Jan 1, 2012 complement other measures that promote better protection for financial consumers and a sustainable credit market that contributes towards preserving financial and macro-economic stability.

Below are the main points of the guidelines:

Requirements apply to all new and additional financing offered to individual customers and sole proprietors.

Applicable to the following products:

1. Home financing

2. Vehicle financing

3. Credit and charge card

4. Personal financing, including overdraft facility

5. Financing for the purchase of securities except for share margin financing that are subject to the rules of Bursa Malaysia

Key requirements in guidelines:

1. Suitability and affordability assessment. This is to ensure that a financing product offered to a customer is suitable and affordable given the customer's financial circumstances and needs.

2. Marketing and disclosure. The marketing staff must provide product disclosure sheet to customer and the'' marketing staff must explain key information.

The marketing staff must be properly trained and steps must be taken to ensure remuneration policies promote responsible marketing practices.

3. Recovery. Measures must be taken to ensure that customers with genuine financial difficulties are treated fairly

Affordability Assessments:

1. Financial institutions to assess customers' ability to repay in full throughout the financing tenure,'' without recourse to debt relief or substantial hardship.

2. Appropriate enquiries on income after statutory deductions and debt repayment obligations to enable financial institutions to improve assessment of individual affordability and provide suitable and responsible advice to customers on their capacity to take on additional financing.

3. Financing decisions to give due consideration'' to customers' circumstances such as nature of employment and number of dependents to prevent the customer from becoming over-indebted

4. Credit decisions to also allow sufficient buffers for the customer's daily and essential expenditures

5. For vehicle financing application received after Nov 18, 2011, the maximum tenure is nine years

Product disclosure sheet to provide key information on:

1. Financing amount, tenure and rate

2. Payment obligation: Instalment amount; total repayment amount at the end of tenure; and impact of rate increase by 1% to 2% on instalment amount, total repayment amount and total interest cost

3. Applicable fees and charges

4. Any lock-in period and applicable penalty

5. Implications of default - late payments charges;'' increase in financing rate; legal actions (e.g foreclosure, repossession)

6. Avenues for redress and assistance.

Other requirements to enhance consumer protection:

1. Ensure financing products are not mis-sold via telemarketing. Telemarketing staff must confirm the acceptance of financing products sold over the phone

2. Ensure payment allocation works towards the interests of consumers.'' FSPs to allocate payments made by customers to clear instalments in arrears and insurance premiums before any fees

3. Reduce barriers to early repayment. Early termination fees should reflect the costs incurred by the FSP due to only early termination of the financing contract.

4. Ensure avenue for assistance. FSPs to provide a dedicated contact point for customers facing'' repayment difficulties to seek assistance.

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