Tuesday, 18 November 2014

Legal Action Procedures - Hire Purchase Loan (Motor Vehicle) - Part 5 - Continue Payment



THE "CONTINUE PAYMENT" PHENOMENA

Whoever has studied the concept of "marketing" or basic economics, will stumble upon these magical words such as "needs and wants" , "supply and demand" and "niche market". You may be wondering why all the sudden are we talking about marketing? There is a reason for it and it is relevant to our topic. So please bear with me for a while. Back to marketing. When there is a need for a particular product or service, obviously there will be a demand for it. If it is not available in the "mainstream" market, the consumer will look for individuals/entrepreneurs or a company who will be able to supply such unique product. Words got around that such product is available through "special channel" and eventually the product will be popular and become a "niche market" for its "enthusiasts".

CONTINUE PAYMENT THEN AND NOW

A quite popular "service" nowadays which can be categorized as a "niche market" is the services of "Continue Payment" for cars still under financing when the original owners could no longer afford the monthly payment and pass it on to the "new owner" without any actual change of "ownership" through the proper channel where the Bank is still the ultimate owner.  This practise has been around for a long time most probably ever since car loans becomes "mainstream".  The only difference between then and now is that during the old days, it was a "hush hush" affair and was done between friends and relatives and through "small time" brokers ("mobile consultants") or used car dealers who helped with some form of "documentations" for a fee. 

The "New Buyer" will be asked to pay a certain amount or to update the arrears in instalment with the Bank as "deposit" and an agreement will be signed between the "New Buyer" and the "Old Owner" where the remainder of the monthly instalments will be paid by the "New Buyer". All insurance and road tax matters will be handled by the "Old Owner" as the registration of the car is still under his/her name. In the old days the "agreement" is normally hand written and signed by both parties with witnesses from each side. In some cases the "Payment Continuer" was  the used car dealer who has "bought" the car and will only settles the loan when the car is sold to a new buyer with a loan from another or the same Bank. 

One of the main problems apart from the risk of non payment and illegal activities involving the car is the difficulty in renewing the road tax and insurance. During those times the Bank will keep the registration card which is essential for road tax renewal (sometimes there are cases in those days road tax renewal was done without it. Hmm.. some form of magic stuff here.....) The Bank will insist in the instalment being "up to date" before allowing any road tax renewal. A bigger problem for the "Old Owner" which has been mentioned previously is the risk of the "New Buyer" unable or unwilling to continue with the instalment payment and decided to pass on the "burden" to another person with their separate little agreement and the process continues until it reaches a local "warlord" or "mafia" or "whatchamacallit" who has some "influence" in his community. The car shall remain his "property" without having to pay a single cent until the Bank decided to "buy it back" (repossession is normally not an option here) for a hefty price if it is still worth doing so and proceed to sue the Hirer for the whole amount plus the "extra cost" or just "Let It Be" and still sue the pants off the Hirer.

Now times has changed and with the advent of modern technology, this "service" is even offered in the open through social media and sometimes in the local newspaper. Realizing the weaknesses of the "continue payment" model, a few "improvements" and "innovations" has been introduced to sort of mitigate the risks involved even though it could not negate the fact that it is an offence under the Hire Purchase Act and the Bank is the actual owner of the vehicle. They are detailed below:

1) The agreement or the "handing over" of the car is accompanied by a police report so that in any circumstances the car is involved in illegal activities or the "New Owner" decided to give the car to somebody else (even though the "New Owner" may do the same thing as anybody can make ANY report) it is "easier" to trace the "last person" who has the car. The downside is that this is the proof needed by the Bank to charge the Hirer with fraudulent sale of the car. More on that later.

2) The agreement is more "professional" looking with words that can only come from legal documents. Maybe the agreement is drafted by someone who is familiar with legal terms or drafted by Mister Lawyer himself.  The only thing is, if it is indeed drafted by Mr Lawyer, would it be odd since he/she would know that the Hire Purchase Act will supersede or override all other side agreements and will not negate or discharge the Hirer and Guarantor from their obligations. For what it is worth, the "continue payment" agreement will be duly stamped which may give some comfort or  "the feel good factor" on its "security" even though obviously that is not the case.

3) The problem of insurance and road tax renewal is a thing in the past as online services like "MyEG" will do it for you without the registration card. The Bank no longer has the right to keep the registration card which used to be their "secret weapon" to get payment from the Hirer. This is provided for by Section 4E under the Hire Purchase Act 1967 (Amended 2010) as shown below:



 THE BANK'S REACTION TOWARDS "CONTINUE PAYMENT" ARRANGEMENT

In a "continue payment" arrangement, as long as the payment is made on time with no illegal activities involving the car and barring any major accident, the case can be considered as "safe". For the Bank,  an account with prompt payment will rarely attract attention. The Bank will know something is wrong when:

1) The account becomes overdue for months and the car is untraceable. Typical "alarm bell". After being bombarded with calls and threats of legal action, the Hirer finally confessed that the car has been given up for "adoption" via a "continue payment" arrangement.

2) The guarantor "broke his/her silence" after being fed up with the continuous calls and threats of legal action.

3) The car may be involved in criminal activities such as robbery, smuggling, drug related and other illegal acts and impounded at the police station. Normally the Hirer will be arrested or brought to the police station as the car is registered under his/her name. After some interrogation, he/she will admit that the car has been given to a third party. The police may also call the Bank directly on the matter and the truth will come out.

4) The car is involved in an accident requiring an insurance claim either a "total loss" or "repair" claim. The Bank will be contacted by the Insurance Company or the claim workshop on the matter being the "real" owner of the car.

5) As a result from a site visit by the "CSI" team to the Hirer's house, "concerned" neighbours revealed that they "have not seen the car for a while" or "he sold the car already" and some other information not relevant to the car. They seemed quite happy to have some "new material" to gossip on.

6) The Bank receives a "mysterious" call giving information on the "continue payment" activity. This can happen  regardless of the payment pattern. Could be from the guarantor or a "concerned"citizen or even the Hirer himself who may have second thoughts about the deal which the Bank will definitely investigate.

Upon knowing the information especially when the account is overdue, the Bank will mobilize all its "assets" including the repossession agents and the "CSI" team to retake the car or any other appropriate action including whether there is a need for a "buyback" arrangement. Fast action is needed to avoid the loss of the car and potential higher losses.

WHAT IS THE PENALTY FOR "CONTINUE PAYMENT" ARRANGEMENT UNDER THE HIRE PURCHASE ACT?

Section 38 of the Act states that:


Below is Section 16(2) (in the red box) where the Bank need not comply with Section 16(1) to repossesses the car if there is reason to believe the car is removed or concealed by the Hirer. The BURDEN OF PROOF of such act however, lies upon the Bank but as we can see earlier, this is not difficult to obtain.


Here is the dilemma for those involved in the "continue payment" arrangement. I have mentioned earlier that in order to "strengthen" the arrangement, the "handover" of the car can be made at the local police station together with a police report and a "sale and purchase" agreement. This is the proof needed by the Bank to use Section 16(2) above. A real "catch 22" situation.

The Bank can also use Section 37 below:


So there you go. Enough provisions in the Act enabling the Bank to take action even on the basis of suspicion that the car is no longer in the possession of the Hirer.
 "CONTINUE PAYMENT" A LA BANQUE OR THE BANK'S STYLE

One may wonder that with the all the risks associated with the "continue payment" scheme, would there be any solution from the Bank? In actual fact, there is. Take a look at this provision:



The Bank's version of the "continue payment" scheme is no different from applying for a new loan. The "new buyer" would have to fill in the application form, submit the supporting documents and if everything "checks out" or in order, then only the assignment is approved and a bunch of documents to sign. For those who are blacklisted or even declared a Bankrupt, don't even think of applying. That is why the "unconventional" scheme of "continue payment" is popular where anybody can apply as long as you have the cash and the choice of cars is nothing short of extraordinary with "marquee" and other popular models. Common sense will tell you that why go through all the trouble to do the assignment when you can apply for a new car or a better model? 

CONCLUSION

Based on the facts given above, the "niche market" for the "continue payment" business is here to stay. It is far more "flexible" than the Banks' even though much riskier. Well some say life without some form of danger is of no thrill or excitement. For the "entrepreneurs" of "continue payment" scheme, don't worry, this article won't affect your business whatsoever. There will always be new "qualified" customers who are "not qualified" to apply for Bank loans with cash in hand and high taste of popular models. They will never be short of "suppliers" (i.e. Hirers) who will be stuck with the monthly payment partly due to some "miscalculation" on their part on the monthly commitment. For example, petrol, maintenance, second year insurance (first year insurance was "free" due to inclusion in loan amount) was not taken into consideration when "budgeting" for the "affordibility" of the car. The car was also "free" (100% financing) which lead to the higher amount of instalment. Many succumbed to financial pressure having to pay for higher monthly commitment and the ever increasing inflationary forces. 

Hmm... Fraudulent sale of vehicle and 100% financing. Among the offences committed by the Hirer and the Banks respectively. If the law is enforced strictly (like the recent JPJ vehicle plate number specification operations- up to a millionth of a millimeter accuracy) then we shall see the CEOs, Directors, Managers, Officers, Clerks, Car Dealers and Hirers populating the prison and probably they can start their own Banking system in prison since the "quorum" is complete. To review the various offences and its respective penalties, kindly refer to the topic Legal Action Pocedures Hire Purchase Part 1 

Now that is interesting and something to ponder upon. It has been going on for so long. Why you may ask? I don't know. You have to ask the relevant authorities. My "uneducated" guess would be to foster "growth" in the economy and keeping inflation rate in check or so they say. The debt based economy needs continuous borrowings in order to "pay" for the interest of the old debts. Refer to Facts of Digital and Paper Money and How Interest Steals if you need more clarification.

Nowadays the Central Bank encouraged Banks not to be over zealous in repossession. Instead Banks are advised to give some breathing space and should be open for negotiations and probably offer some loan rescheduling for financially strapped customers which is actually beneficial for both parties. Processing of new loans is stricter now which is a sure sign of "over exposure" judging from the alarming figure of the household debt. The Banks are also fully aware of the bad experience of "brutal" and "across the board" repossession during the financial crisis of 1997 - 2000 where huge losses were recorded when new loans were frozen (needed to cover for operation costs and to cover the "losses") and disposal of repossessed vehicles at cut throat prices. So they must be extra careful for the next cycle of "economic cyclone"

So ladies and gentlemen, that shall conclude the series on the Legal Procedures for Hire Purchase Loan under the Hire Purchase Act 1967 (Amendment 2010). I hope that the information given is beneficial. Oh ya! I forgot to mention that regardless of the loan status be it "conventional" or "Islamic", both shall be under the purview of the Act and the same goes with other Bank loans as well where all disputes will be referred to and decided by the Civil Courts and not Syariah Courts. Well, the laws of the land was "plagiarized" from British Law and has gone through various amendments to suit the "local flavour" . Furthermore, most of these two "Banks" (Islamic or otherwise) are under the same roof or the same counter "managed" by the same personnel.  Luckily the personnel are not wearing "two tones" type of clothing like"Two Face" Harvey Dent in Batman movies and comics. We shall look into the legal procedures in Housing Loan recovery in the next article. 



Saturday, 15 November 2014

Legal Action Procedures - Hire Purchase Loan (Motor Vehicle) - Part 4 - The Public Auction

THE PUBLIC AUCTION



After the expiry of the Fifth Schedule, the Bank needs to sell the repossessed car in order to recover back its "principal and costs". Nowadays, the selling will be by way of public auction usually held at the premise of the panel storage facility conducted by a licensed auctioneer complete with his "wooden hammer" or the mallet if you wish to call it as such.

In the old days, auctions were normally reserved for properties in foreclosure proceedings. For cars, it was deemed sufficient to advertise in the local newspapers inviting the public to submit their bid for the listed car by tender and the highest bidder will be awarded the right to buy the car. This method was heavily criticized due to the lack of transparency and allegation of abuses. The main grouse is the manipulation by"insiders" with "insider knowledge" of the tender price where anybody be it the dealers or outsiders who are close  or "buddy buddy" with the Bank's staff (read: the clerk, officer and manager) can outbid and "undercut" any tender amount submitted as long as the price is equal or higher than the price stated in the Fifth Schedule. Even though it is perfectly "legal" since all the documentation are in order,  it is still considered wrong "morally" with nepotism being the popular word of choice nowadays. It is not always the case but it happens especially when the car is in good condition and also a popular model. 

In the event the tenders and bids received are lower than the Fifth Schedule value, the Hirer MUST be notified and given the chance to introduce a CASH buyer before the next tender exercise where the "reserve price" will be lower. The process continues until the car is sold. Normally this happens to a less popular model, a car with potential problems passing the PUSPAKOM and JPJ requirements (engine change without proper documentation, "frankenstein" car or a car under police investigation or released under police bond) or simply the condition of the car is not good.  

That is why the method of selling repossessed cars by public auction is used nowadays to at least allays the fear of non transparency and nepotism tendencies. However, it is still prone to manipulations by a secret pack of "seasoned" bidders who know each other very well and are regulars in every auction event. Even though considered "enemies" (at least during the auction), they can work together for a common goal that is to deny a "newcomer" a chance to buy a car or to swing the auction to their advantage by either pre-meditated or "on the spot" planning. The term "newcomer" is used loosely here in reference to individuals who want to bid for the first time or who has been to a public auction for only a few times or the one who is quite "seasoned" but has become "the common enemy" due to some unfavourable behavioral traits or simply put, a pain in the ass. 

Therefore during the auction and bidding process, the "newcomer" may become a victim of some bullying tactics employed by the secret pack mentioned earlier. No words need to be spoken, they have developed their own communication techniques through some "gestures and sign language" like head scratching, nose touching, hair pulling, nose picking, moustache "massaging" and many others each with its own "meaning" like "Not Interested Move", "Outbid That Guy Move", "Play With The Bid Until That Guy Has to Pay More Move" and many other "Moves" that will give advantage to the interested parties and of course the "Move" will not involve Satay KAJANG or any reference to that particular place. This is not to say that it will happen all the time but suffice to say it happens as with other public auctions.

The public auction will be advertised usually 14 (Fourteen) days before the auction date and the Hirer will be notified accordingly as provided by Section  18 (4)(a) below:



If the sale of repossessed car is not by way of public auction, the Bank needs to give an option to the Hirer to introduce a buyer to buy the car in CASH if the price is lower than the Fifth Schedule value. With the lengthy "cooling off period", the overdue position of the account would have been around 5 (Five) months or more since the Bank may have to wait for other repossessed cars' Fifth Schedule to expire in order to include them in the public auction for obvious reasons of cost saving.


  


As you can see above, there are 3 (three) possible outcomes during the auction date:

1) Auction price is more than the loan amount;
2) Auction price is less than loan amount; and
3) No bidders for the car

You can see for yourself in the info graphic shown the steps taken for each situation.

STEPS TAKEN AFTER THE CAR HAS BEEN SOLD

We shall elaborate a bit more on the situation where the auction price is not enough to cover the outstanding loan amount. The Bank will contact the Hirer on the matter and request a meeting to discuss a repayment proposal to settle the outstanding sum. If there is no response from the Hirer, the Bank will initiate the normal loan recovery procedures by sending the Notice of Demand and Summons. For revision on the legal process, you can proceed to Legal Action Procedures - Personal Loan Part 1 and Legal Action Procedures - Personal Loan Part 2 The procedures are the same so I don't have to repeat it here.




After all the "ding dong"ing process has been completed, the overdue position would have reached its sixth or seventh month. Investigations by the "CSI" team is still going on for the next course of action if necessary. By this time, the Bank might have obtained Judgment  and may be considering executing the said Judgment with the various methods of "execution" if there is no acceptable repayment proposal from the Hirer is received.




For a detailed mode of "execution" of the Judgment kindly refer to Legal Action Procedures - Personal Part 3


THE PLIGHT OF THE GUARANTOR

As with any other loan, the guarantor shall share the same burden of the debt but not necessarily enjoying the "product" of the debt. A picture is worth a thousand words, they say:




However, in the Hire Purchase Act 1967 (Amendment 2010), there are a few provisions with regards to the guarantor as shown below:


Wow! Some pretty serious stuff here. Typical legal terms, devoid of commas and reading it aloud may twist your tongue to a certain extent and of course, open to interpretation depending on whose side you are on. It is not known whether any guarantor actually exercise his or her rights in the provisions of the Act. This is because a guarantor is normally close and emotionally attached to the Hirer/Borrower like spouse, friends. business partners, and company directors. Very rarely will you see a total stranger becoming a guarantor to somebody unless it is a fraud or through deception or the person is suffering from a mental condition called "Obsessive Compulsive Guarantor Disorder" (OCGD). The decision to make a counter claim or sue the Hirer may be difficult due to the emotional factors not to mention having to endure the possible lengthy legal process.

Even if the guarantor sues the Hirer for the amount paid, there is no guarantee (pun unintended) that the guarantor will get back what has been paid towards the account. The legal fees and other costs may outweigh the claim so it is not worth the "trouble" as if there is not enough trouble to contend with already. Common sense will tell you that if the Hirer can ignore the"Big Bad Bank" with all its legal might at its disposal, would the Hirer be "interested" in entertaining the guarantor's claim? I personally don't think so. The guarantor might be better off trying to persuade the Hirer to pay up with a"softer" approach rather than the "hard line" approach even though the latter may be necessary in certain circumstances and if the payment made is large enough to be worth the effort. 

Whatever the case may be, the guarantor will suffer the most but in the Hire Purchase Act, it is at least "comforting" to know that there are options available for guarantors. Sometimes the Hirer, in an effort to "solve" the problem of non payment, "sells off" or "pass the baton" that is the responsibility to pay the loan to a third party in an arrangement commonly known as "continue payment" which contravenes the Hire Purchase Act. The risk of non payment is high and the guarantor would have to "share" the burden and you already know it is nothing like "sharing" a status in Facebook.

This issue might invoke the following question and it is not "pretty" if you are the guarantor:




With the above I hereby conclude the series on the Legal Procedures For Hire Purchase Loans with special attention to motor vehicles. I would like to add a bit on the "continue payment" activity which is rampant and actually is an "open secret" in the financial industry. The pros and cons together with its legal implications under the Hire Purchase Act 1967 (Amendment 2010) shall also be discussed. 

NEXT TOPIC : THE "CONTINUE PAYMENT" ARRANGEMENT


Thursday, 30 October 2014

Legal Action Procedures - Hire Purchase Loan (Motor Vehicle) - Part 3 - Repossession


We have now come to a quite interesting topic as depicted above. There may be some "hot" scenes such as slander, defamation, car chases,  vulgarities, fist fights and we may even have some "chair throwing" sessions. Yes, sounds a lot like the current political scene and yes, we are actually "talking" about car repossession.





After taking into consideration the mandatory two months of successive defaults and the issuance of the Fourth Schedule giving the Hirer a further 21 (twenty one) days, plus a few more days allowance for the weekend, public holidays, sick leave, emergency leave and a host of other "leaves", THREE months or more has passed. Finally the Repossession Authority was issued and we assume that the car was repossessed.

For a clerk or the officer in charge, this is supposed to be a "happy moment" where the asset of the Bank has been "recovered". However, there will always be a feeling of anxiety and uncertainty of what is coming his/her way when the car, the Repossession Agents and the Hirer who may be accompanied by some "concerned" and "angry" mobs complete with sickles, torches, pitchforks and rakes just to name but a few to "discuss" matters.

Among the requirements for a Repossession Agent after repossession is to make a Police report and then proceed to the Bank for car inspection and photography session. The inspection will focus on the engine and chassis numbers of the car, the overall physical condition of the car recording whatever visible defects such cracks, dents, engine condition as well as making a list of the Hirer's personal belongings.  Upon inspection, the car will be sent to the Bank's panel storage facility who will do the same type of inspection. This is very important to protect the Bank's and the store's interest in the event of any counter claim made by the Hirer.

There are some cases where upon repossession, the car is sent to the store directly due to some security concerns and usually because the car is being chased by some angry mob where inspection will be done later at the store. For a "seasoned" clerk or officer, such situation (events after repossession) will not surprise them anymore. If there is a new clerk or officer or any staff who has just been transferred to the collection department, they will be "released"  to face the situation in order to give training in self composure, crisis management as well as to "harden" the heart. (Yeah, right). The pecking order to face the situation is more or less like the accounting principle of LIFO (Last In, First Out - most junior first) which is of course under some form of supervision (watching from a safe distance) if the situation gets out of control.

When the "party" of Repossession Agents and the Hirer most probably with his/her "entourage" finally arrived and if there is any commotion, the clerk, the officer and the"Pak Guard" (security guard) will try to diffuse the situation by being the umpire or referee of a possible slinging match. Being a referee would have its own risks and hazards where the referee may be caught in the "crosfire" or "friendly fire" or even "unfriendly fire" when adjudged to be biased by either side of the "warring" party. Whatever the case may be, when things have cooled down a bit, discussions and negotiations can commence  with each party given the chance to present their "facts of the case" and again, the Bank's representative being the "judge" (no more refereeing) on the issues raised.

Below are the excerpts of each party's chronology of events leading to the repossession based on a true story but has been "remixed" and adjusted accordingly:

REPOSSESSION AGENT'S VERSION

This morning my colleagues and I stumbled upon (Yeah right. They have been following the bloke for days to study his movement patterns) the Hirer presumably on his way to work. We followed the car and waited for a suitable time to "greet" the hirer.

When the car has been parked, we approached the hirer and greeted him with our best smiles and pleasantries. We introduced ourselves as the agent of the Bank showing him our identity cards, authority cards, certification from AHPCM and the Repossession Authority. We politely asked for the car keys and offered him to come with us to the Bank. However, despite our extreme politeness, the Hirer, without any provocation was hostile towards us and started to hurl abuses. Being sensitive guys, we were hurt by such foul language used which reminds us of the song "Hurt" by the Manhattans. (If you are below 40, you may have to look it up in Youtube). Despite the abuses, we tried our level best to persuade the Hirer to hand over the keys but the Hirer still refused to cooperate and continued with the abuses and further insulted us with the words "bloody idiots who never went to school", "lazy bumps, that's why you morons ended up with this lousy job" and other insults which we may have to sensor because of its X-rated contents as we are not used to such filthy language.

Before losing our patience and with a heavy heart we have no choice but to wrest the car keys from the Hirer while one of my colleagues gathered the Hirer's personal belongings from the car into a plastic bag before handing it over to him. We left the Hirer there since he refused to follow us to the Bank and proceeded to make a police report before coming here. We asked for a higher repossession fee due to the difficulty of taking back the car, the gangster mannerism of the Hirer and the mental and spiritual abuses we have to endure. One of my colleagues even cried while on the way here. That is our story and all of it is true.

THE HIRER'S VERSION

This morning while on the way to work I realized that a car with two or three suspicious looking characters possibly with malicious intentions was following me. After I reached my office and parking the car I was approached by two goons demanding me to get out of the car. Before I was able to react, one of them opened the car door and took the car keys from me. One of them showed me his id card and some sort of Authority card in a flash and then threw the Repossession Authority to my face. I pleaded with them to give me a chance to go to the Bank to settle the matter but they refused and hurl abuses towards me. They were very rude and the language that they used can make a grown man blush with shame.

While I was discussing with those men, another one of them took out my personal belongings and handed it to me saying if I am not satisfied, I can come to the Bank and sort it out and left me there flabbergasted. I am very sad, disappointed, stressed out and almost died of embarrassment since there were a lot people around when it happened. I know I was wrong but I don't deserved to be treated in such a way. For your information, I kept two gold bangles, a golden ring and RM2,000 under the front seat of the car and now it is gone. I demand compensation and harsh punishment for your Agents for being rude and robbing me of my valuables. I have already told my mom, the police and the village head and all my Facebook friends about this and some of them are here with me including my mom to lend me some moral support. I demand justice for me and other Hirers who may face the same predicament.

BANK OFFICER/CLERK VERSION (DEPENDING ON THE SITUATION)

I just got to know about this repossession about an hour ago since the Repossession Authority was issued by Head Office. Nowadays it is the Head Office who issues the Repossession Authority in line with Bank Negara's (Central Bank) latest guideline on tightening the loan recovery procedures (Yeah, it is always "good" to "tai chi" or "push" the blame on "Head Office" or even "Bank Negara", entities unreachable by most borrowers). We used to only "bother" about accounts that are more than three months overdue.We have no choice but to follow the guidelines. You (the hirer) have not paid a single sen towards the account despite our sms, reminders and phone calls (the first "whole truth" statement) so it is quite difficult for us to sympathize with you. 

With regards to our Agents, they have been trained to be courteous and act according to the guidelines. However, if there is a mistake made by them, we wish to apologize and shall give them a stern warning (have to "back up" the Agents if it is apparent the Hirer is pulling a fast one). On the missing items, kindly lodge a report and let the police investigate as this a very serious allegation. After discussion with the manager and after careful consideration, repossession fee is set at RM500.00 (normally the Agents will make some noise on the "low" fee but a promise of more "easy" Repossession Authority will keep them quiet for a while. They are just trying their luck most of the time) There have to be some "give and take" on the part of the Bank and Repossessors otherwise it would be quite difficult to work together.

CONCLUSION

The above scenario is just an example of a myriad of situations when a car is repossessed. You cannot trust the agent or the Hirer 100% so sometimes a bit of experience and "gut feeling" is essential to come up with the right or "almost right" or "totally screwed up" decision. With regards to the repossession fee, it depends on a lot of factors such as the amount overdue, months overdue, the degree of "difficulty" in getting the car back which may include a "buyback" deal involving  local warlords or "Don Corleones" or "Little Napoleans" or whatever "whatchamacallit"who has "jurisdiction" or a "caveat" over the car usually bought over hand to hand from a "continue payment" deal gone sour. There are also cases where it is the Agent who will take the car from the Hirer and will keep it for months for "fermentation" until it is "ripe" enough to command a higher repossession fee and of course such Agents are not tolerated and will be blacklisted by the Banks and AHPCM.

Whatever it is, when a car has been repossessed, the Bank must sent a Notice called the Fifth Schedule as provided in Section 16 (3) of the Hire Purchase Act 1967 (Amendment 2010). This is an excerpt of the Section:


The Fifth Schedule must be sent within 21 (twenty one) days from the date of repossession. Otherwise, the Bank will lose its rights in the Hire Purchase agreement. However, if  the Hirer exercises his/her right to take back the car, the Hire Purchase Agreement shall continue as if the Fifth Schedule has been sent.

In Section 17 (1) , Bank is not allowed to sell the repossessed car without the consent of the Hirer before expiry of the 21 (twenty one) days  given in the Fifth Schedule. The ones in the red box that is Section 17A and 17B are about the "permit" or permission given to the Registered Repossession Agent as discussed previously.

Below is a sample of a Fifth Schedule:



The Fifth Schedule has two main parts or rather choices given to the hirer. We shall look at the first part which is shown below:



This part gives the Hirer the opportunity to "reactivate" the Hire Purchase Agreement by paying all the arrears in instalment, late charges and other costs.



The second part gives an option to full settle the loan after taking into consideration the repossession cost, storage costs and other incidental costs after deducting the statutory "rebate" calculated beforehand. The excess or shortfall that is due to the Hirer and the Bank respectively if the car is sold at the estimated price given is also stated in the Fifth Sxhedule. The estimated market value is equivalent to "Forced Sale Value" where it depends on the condition of the car. The Bank will usually give a "conservative" value as a precautionary measure in the event the car fails to attract any bidders during the public auction.

The Hirer also has the right to give a notice in writing to the Owner/Bank within the 21 days before the expiry of the Fifth Schedule to introduce an individual who wants to buy the car at a price not less than the Fifth Schedule's estimated value in CASH. This right is provided for in Section 18 (1)(a)(ii) :



Upon expiry of the Fifth Schedule, the Bank is free to sell the car. How is it done and what is the Bank's next course of action? We shall continue in Part 4...


Tuesday, 28 October 2014

Legal Action Procedures - Hire Purchase Loan (Motor Vehicle) - Part 2

Here we are. The loan recovery procedures for Hire Purchase loan. Full slides in Powerpoint format can be obtained from here or from the Facebook Album collection here. We start with the introductory slide of our topic:



Should anybody wants more information on the "Source of Funds" kindly refer to this Facts about Digital, Physical Money and Interest/Usury

As with any other loans, we begin with a joyous occasion of getting the loan approved, money has been disbursed and the car has been delivered. The day of disbursement shall then be the day the agreement officially commences. Such a "happy" occasion can be reviewed in the previous article entitled Part 5 - The Collection Department  At this time, the Bank already "collected" the first interest/usury for the month. You can refer to Legal Action Procedures - Hire Purchase Loan (Motor Vehicle) - Part 1 for more information on the interest/usury structure.

We will make an assumption that in our example, there has been no payment received from the Hirer from the very beginning. This will make it easier to see the flow of the legal action taken. During the first month of default, the loan is still considered "new" and the Bank will give the Hirer the benefit of the doubt where the standard reminder, text messages will be sent. Phone calls will also be made to remind as well as to check whether the phone is still functioning. Late charges and reminder costs are automatically calculated.



As soon as the account is two months overdue (depending on weekends and public holidays and the person in charge is alert enough) the notice called Fourth Schedule will be printed as stipulated in the Hire Purchase Act in Section 16 giving the Hirer 21 (twenty one) days to update the arrears in instalment:




What is shown above is only part of Section 16 of the Hire Purchase Act. Section 16 in full is given below:



The Section 16 (2) above (in the red box) will be discussed in more detail in a separate topic entitled "Continue Payment". For now, we will look into the Fourth Schedule and other related notices. Below is the sample of the Fourth Schedule:



As you can see in the Fourth Schedule, if the Hirer voluntarily surrenders the vehicle, the cost of repossession, the cost incidental to taking possession and the storage cost WILL NOT be charged. After 14 (fourteen) of the issuance of the Fourth Schedule, another Notice called the Notice of Intention to Repossess will be issued which also serves as an additional reminder that the Hirer has only 7 (seven) days left to make payment failing which repossession will take place. This notice can be regarded as an additional "cushion" for the Banks that they have given enough alerts and reminders in case the Hirer makes any claim of not being "sufficiently" reminded. These notices will be sent by registered post as proof of posting to the last known address of the Hirer and Guarantor (if any) 

This is a sample of the Notice of Intention:



Please be reminded that under Section 16(1), the above notices can ONLY be sent if there is TWO SUCCESSIVE defaults in instalments (not 1 1/2 instalment or part thereof. That is why Banks may not accept partial payment unless in unavoidable circumstances for fear of "interpretation" issues in the event of disputes). Another factor to consider is that if the Hirer has paid a total of 75% of the CASH PRICE of the car, the Bank would have to apply for a Court Order in order to issue the Fourth Schedule. "What? Run that by me again" you might say. Kindly refer to the table below:



Based on the above table, the cash price of the car is RM60,000. If the Hirer has paid up to  72 months (6 years), he/she would have paid 75% of the cash price. (now this is THE "math" that is taught in schools). This also means that the Bank CANNOT issue the Fourth Schedule if the Hirer fails to pay instalments number 73 and 74 (successive) and need to apply for a Court Order to do so.  Bummer! It will be cumbersome not to mention time consuming even though the car may be parked in front of the Bank everyday. By the time the Court Order is obtained, the car may be long gone "riding on the sunset". 

However since in our example no payment is received since the inception of the loan, these Notices can therefore be issued.



We continue to the next step. After the expiry of the Fourth Schedule in 21 days, the account would have been 3 (three) months overdue. The Bank can now issue the Repossession Order or Repossession Authority to the Repossession Agents. Nowadays the Repossession Agents are required to be registered with the Association of Hire Purchase Companies Malaysia (AHPCM) . These agents will be given an "Authority Card" by the Banks as well as the certification by AHPCM as proof that they are authorized to carry on the repossession assignment. This is due to some "unpleasant" reputation of some Repossession Agents over the years with regards to the manner in which cars has been taken or in some cases, "stolen" from the Hirers.

AHPCM and the Banks has come up with quite a comprehensive guidelines of  the "Do's and Don'ts" for the Repossession Agents in order to minimize repossession incidents not according to the proper procedures. Listed beloware  the guidelines taken from AHPCM's website

CODE OF ETHICS FOR PERMIT HOLDER ON REPOSSESSION

1.     (a)   permit holders must ensure that they are in possession of current and valid permit during the course of carrying out repossession work.

        (b)   as far as possible the number of authorised permit holders performing repossession activities must be minimized unless circumstances warrant any additional assistance.

        (c)    repossession work can only be carried out daily from 9 am to 9 pm.

2.     Permit holders issued with a repossession order by owner should only gain entry into premises with the knowledge and consent of the occupant.  Trespassing into private property is not allowed without a court order obtained by the owner.

3.     Permit holders issued with a repossession order by the owner should be well mannered and dressed decently. They should ensure the practice of professionalism and dignity in carrying out their work.

4.     The use of ‘strong arm tactics’ of any kind is strictly prohibited in the performance of their work.

5.     At the time of repossession, the permit holders should:

        (a)  Produce his permit, national registration card and give a standard notice to the hirer informing him of the address and telephone number of the legal owner and the authorised officers he/she can contact immediately to resolve any problem.

        (b)   give a reasonable time to the hirer to inspect the motor vehicle or goods and remove his personal items and belongings.

        (c)    take photographs of the interior and exterior of the motor vehicle or goods and provide such photographs to the legal owner.

        (d)   cause to be issued an inventory list to state the status and the condition of the repossessed motor vehicle or goods.

6.     As far as possible repossession should be undertaken in the presence of the hirer or any person authorised to use that motor vehicle or goods.

7.   A police report on the repossession should be lodged as soon as practicable and preferably within 24 hours but in exceptional circumstances, not later than 48 hours from the time of repossession.

8.     Permit holders issued with a repossession order by owner should at all times act in accordance with the laws, regulations, terms and conditions, code of ethics and guideline issued by the Controller in the performance of their repossession activities.

9.     Permit holders should also observe any other Code of Ethics or Guidelines issued from time to time by the Controller.


I believe that the Agents have done their level best to follow the guidelines above since they know they are being watched and a slight mistake may render themselves out of the job and they themselves would prefer a "hassle free" repossession. However, in my previous article here you might still remember that the Hirers or Borrowers have their own set of "personality traits" which may invoke different reactions from these repossession agents.



The "multiple personality" factor of borrowers shall bring countless headaches to the clerks, officers and Bank managers whenever a car has been repossessed especially on the cost of repossession. Most of the time, there will be some form of drama involved and the genre of such drama may be a "tear jerker", "thriller and suspense", "Law and Order" and "Bollywood style action" but definitely no "love story" or "science fiction" here. The repossession cost will normally be hotly debated with the Hirer and Reposession Agents both giving their "submissions" to the "Judge" i.e the Bank who will make the final decision.

If only all Hirers are of the "Spongebob Squarepants" character, life would be much easier as there would not be any need for repossession at all. But then, this is the real world and not "Bikini Bottom" and life is not as simple as that.

The main objective for any repossession agent is to maximize the fees for each car they repossess as they normally operate in groups of two, three or four. For "easy" cases like two or three month overdue, within the vicinity of the Bank and an "ok" Hirer, the fees are quite standardized as determined by the Bank. Unlike some "heavy metal" stuff which normally surpassed the more than 6 (six) months overdue threshold and sometimes overdue for years coupled with the "current owner" being a "difficult" chap to deal with, then the fees are definitely higher. In some cases, the Bank has to resort to a "buy back" arrangement if it is still worth doing so (Hmm.. car repossession also got a "buy back" arrangement :)) and the amount could well reach thousands of Ringgit. The original Hirer will definitely suffer from the resulting legal action as most of the time the car has been passed around multiple times from hand to hand originating from an innocent "Continue Payment" deal gone sour. (more on that later)

Back to Reposession Agent. Maximizing their fees and getting "high success rate" Repossession Authority are their main objective. That is why they need to have a good rapport with the clerk or officer or Bank Manager who gives out the Repossession Authority. The one who gives out the Repossession Authority need to be extra careful in distributing them as giving the same Repossession Authority to multiple Agents especially the "easy ones" would be inviting trouble unless it is agreed upon themselves (for highly wanted cases) and done in an "open" manner and in the spirit of "may the best agent win"' atmosphere. There were cases of Agents fighting among themselves ala "gang war" over a Repossession Authority and some Bank staffs have been known to be assaulted over some Repossession Authority issues. Hmm... perhaps the Bank would look into giving more insurance cover and benefits for their collection staffs judging from the risk they face everyday. In the "old days" the counter clerks face more risks in terms of robbery. Nowadays robbers has gone "online" (they even managed to steal more money "at their fingertips") or prefer to steal ATM machines and some fools has also resorted to stealing Cheque Deposit Machines for whatever reason known to them. Now the collection staffs' job is far more riskier. :)

Ok. Enough of that. Below is a sample of a Repossession Authority:



We shall continue in the next section where we will discuss the events after repossession. Quite a long story....

Monday, 27 October 2014

Legal Action Procedures - Hire Purchase Loan (Motor Vehicle) - Part 1

Now we have reached a quite "popular" topic that is the legal procedures for car loan recovery. Why? Because most people have cars either brand new or used and most are bought through Bank loans. Out of necessity of course! A "new" car today will be classified as "used" immediately upon registration. Those with loan terms of 7 and 9 years are still paying through their noses or already starting new loans through refinancing (if the car still got some value) or buying a new car when the old loan has been settled in full. 
Before we proceed with the car loan recovery procedures, there are a few things that you need to know.
All car purchases made through Bank loans are governed by the provisions of the Hire Purchase Act 1967 (latest amendments 2010) which is under the purview of the Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC). The Act has undergone numerous amendments and adjustments to protect the rights of consumers or to be exact, the "Hirer" as well as the "Owner" that is the Bank giving the loan. There are at least 32 offences cited in this Act which covers the Owner giving blank Second Schedule (Part 1 and 2) and the  Hire Purchase Agreement to be signed by the Hirer, the agent or Owner not collecting the minimum deposit of 10%, fraudulent sale of the car by Hirer (usually through "Continue Payment" arrangement), failure in the part of the Owner to give the statutory Notices (Fourth and Fifth Schedule), non disclosure of facts and a host of other wrongdoings. Based on the examples given, you can judge for yourself that the Act has been abused with impunity all this while. 

The various penalties for anybody who is found guilty of committing offences under this Act are listed below: 

FALSE STATEMENT BY DEALERS, etc., IN PROPOSALS

Section 36. Where—

(a) a dealer, an agent or a person on behalf of an owner prepares or causes to be prepared a hire-purchase agreement or offer in writing that, if accepted, will constitute a hire-purchase agreement with the intention of bringing about a contractual relationship between an owner and a hirer; and 

(b) the agreement or offer contains to the knowledge of the dealer, agent or person acting on behalf of the owner, as the case may be, a false statement or representation that is false in any material particular, the dealer, agent or person acting on behalf of the owner shall be guilty of an offence under this Act and shall, on conviction, be liable to a fine not exceeding ten thousand ringgit or to imprisonment for a term not exceeding twelve months or to both.

FRAUDULENT SALE OR DISPOSAL OF GOODS BY HIRER

Section 38. Every person who, by the disposal or sale of any goods comprised in a hire-purchase agreement, or by the removal of the goods, or by any other means, defrauds or attempts to defraud the owner shall be guilty of an offence under this Act and shall, on conviction, be liable to a fine not exceeding thirty thousand ringgit or to imprisonment for a term not exceeding three years or to both.

PENALTY NOT EXPRESSLY PROVIDED FOR

Section 46. (1) Any person who is guilty of an offence under this Act or any regulations made thereunder for which no penalty is expressly provided shall, on conviction, be liable—

(a) if such person is a body corporate, to a fine not exceeding one hundred thousand ringgit, and for a second or subsequent offence, to a fine not exceeding two hundred and fifty thousand ringgit;

(b) if such person is not a body corporate, to a fine not exceeding twenty-five thousand ringgit or to imprisonment for a term not exceeding three years or to both, and for a second or subsequent offence, to a fine not exceeding fifty thousand ringgit or to imprisonment for a term not exceeding five years or to both.

(2) Where a person, being a director, manager or an officer concerned in the management of the body corporate or was purporting to act in such capacity, is guilty, by virtue of section 47, of an offence under this Act or any regulations made thereunder for which no penalty is expressly provided, he shall be liable to the penalty provided for under paragraph (1)(b).

Section 47. Where any offence under this Act has been committed by anybody corporate (whether or not the body corporate has been prosecuted) any person who at the time of the commission of the offence was a director, manager or an officer concerned in the management of the body corporate or was purporting to act in such capacity shall be deemed to be guilty of that offence unless he proves that the offence was committed without his consent or connivance and that he exercised all such diligence to prevent the commission of the offence as he ought to have exercised having regard to the nature of his functions in that capacity and to all the circumstances of the case.

PRINCIPAL CRIMINALLY LIABLE FOR ACTS OF SERVANT OR AGENT

Section 48. Where the agent or servant of a person commits an offence, or does anything or omits to do anything (which if done or omitted to be done by that person would constitute an offence under this Act) that person shall notwithstanding that he has no knowledge of the offence be deemed guilty of the offence and be liable to punishment for the offence unless he proves that—

(a) the act or omission complained of was not within the ordinary scope of the employment of the agent or servant; or

(b) the act or omission complained of was done or omitted to be done without his consent or connivance and that he exercised all such diligence to prevent the commission as he ought to have exercised having regard to all the circumstances of the case.

OBSTRUCTION OF OFFICERS

Section 51. (1) Any person who—

(a) wilfully obstructs any officer appointed under this Act acting in pursuance of this Act;

(b) wilfully fails to comply with any requirement properly made to him by such an officer under section 50; or

(c) without reasonable cause fails to give such an officer so acting any other assistance or information which he may reasonably require of him for the purpose of the performance of his functions under this Act, shall be guilty of an offence and shall, on conviction, be liable to a fine not exceeding thirty thousand ringgit or to imprisonment for a term not exceeding three years or to both.

(2) If any person, in giving any such information as is mentioned in the preceding subsection, makes any statement which he knows or has reason to believe to be false, he shall be guilty of an offence and shall, on conviction, be liable to the penalty mentioned in that subsection

As you can see, the penalties and fines are quite hefty. Like I said before, the main purpose of the Hire Purchase Act is to protect the Owner/Bank as well as the Hirers especially the ones who buy used cars in terms of protection against cars that do not meet specifications or cars with hidden defects, "chopped" or "frankenstein" cars and stolen cars. The Act also protects against improper procedures on loan processing, repossession and legal action. In 2010, some amendments even though excellent in its intention in added protection, is deemed to be too protective and in certain cases is impractical in its implementation, according to some quarters. As a result, the new provisions caused problems to consumers, the Banks and the car dealers to a point that car buying and loan processing has become so slow and frustrating.

For the consumers, it caused problems especially to those who want the car "yesterday" especially during festive season (very very important to some people) but at the same time, they also want full protection from the Act  when they got into trouble even though they (the Hirer) are also guilty of breaking the rules in one way or the other whether they realized it or not. I do not want to comment too much on this as the affected parties has already discussed this matter at length with the authorities and their grouses are easily searchable with the ever accommodating Mr Google.

I want to "talk" about the loan recovery process for car loan in accordance with the provisions of the Hire Purchase Act 1967 (latest amendment 2010) and some other related issues such as "Continue Payment", failure to state the current location of the car  and the like. As I have mentioned earlier, in a Hire Purchase Agreement, as long as the loan remain unpaid, the borrower is called the "Hirer" and the Bank is the real "Owner" of the car where the ownership claim is prominently displayed in the registration card.

Normally the interest/usury rate for a Hire Purchase agreement is of the "flat rate" type even though the "variable rate" type based on the Base Lending Rate (BLR) is also available as another option where a certain percentage point will be added to the BLR. The interest/usury rate structure is provided for under what is known as the "Sixth Schedule" as shown below:



The above calculation is closely related to the "rebate" or a discount that is given for the balance of total interest not yet due when the Hirer wants to make an early settlement for the loan. We shall take an example from the loan details below:



Assuming that the Hirer wants to settle the loan by the 36th month, the formula for rebate calculation is:


Based on the above calculation, the rebate or discount given is RM8036.70 and this amount is valid until the next due date. If the cutoff date has expired, the rebate for the next due date will be calculated for the following month which is for payment number 37 and so on.

During my younger days, the rebate is calculated manually and you can show it to the Hirer if he/she is not satisfied by just looking at the precalculated figure in the ledger. This is the main bone of contention between the Hirer and the Bank whenever there is a full settlement request. The usual dialogue is " I have paid a lot of money already, why is the balance so high? I'm a math teacher you know and I have done my own calculations! (based on a true story) The answer is "This is the math of usury. The name of this calculation is the"Rule of 78" or the "Sum of the Digits" (that is the sum of 1+2+3+4+5+6+...+12 = 78) that is a formula created in the 1920s before the existence of the calculator. The main purpose is to enable the creditors to maximize their profit where a large portion of interest/usury will be collected during the early stages of the loan. So the Bank will whack the interest/usury during the early years (approximately 75% of interest/usury up to the halfway mark of the loan) . Only towards the end  a larger portion of the principal will be collected. That is why dear math teacher, you will not find the answer in your "normal" textbook." 

Not too many people know about this as most of the computations are done with the computer. To have a bit of understanding, you can refer to the table shown below:



A Hire Purchase Agreement commences as soon as the Bank pays the car dealer or the previous owner of the car for the price of the car which includes the first year of insurance premium for a new car. If, for whatever reason the Hirer decides that he/she wants to return or sell the car and would like to make full settlement, even after a few hours, he/she will be charged interest/usury of RM330.28 and the "new" car he/she has bought, has already become a "second hand" car and shall lose a few thousand Ringgit more. That is the fact that has to be accepted.

You can also see for yourself, even up to the third year, a large portion is still "reserved" for interest/usury. That is the interest structure that has been molded into the Hire Purchase Act  which is the "Rule of 78" as what I have mentioned previously. However, it is not clearly stated in the Act as you can see here:



In your opinion, how many people can actually understand the "calculation method" given above? Yes, not many. There used to be a detailed formula but not anymore. Perhaps it is deemed unnecessary in the age of advanced technology we live in where everything is "at your fingertips". No more manual calculation in the "good old days" which is actually good in terms of understanding what the heck you are doing. You can bet your life's possession that not many "new age" Bankers actually know how to calculate the rebate manually. There are some Hirers who will insist on seeing and understanding how the formula works and I would love to see the look on their faces if confronted with such situation. Some will just say that if the computer prints it, it must be right and if the Hirer still insists, they will have to look for the "old timers" or the "old school" colleagues, that is if they still exist. Some have gone their own way after the massive "golden handshake" exercise during the financial crisis of 1997.

Whatever the case may be, that is the fact of the matter whether it is Hire Purchase Loan, Housing Loan, Personal loan, Credit Card Loan or whatever loan the Bank may call it, the interest/usury must be "cleared" first so that it will be easier to sue the borrowers (in the event of default) on the maximum amount of principal and maximize the late or penalty charges and upon obtaining Judgment, charge further interest on the maximized amount.

That shall be the introduction for the "interest-ing" topic on the Hire Purchase Act 1967 (latest amendment 2010). We can now proceed to the Loan Recovery Procedures for Hire Purchase Loan with special focus on motor vehicle in Part 2 of the series...