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


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....

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