Saturday, 15 November 2014

Legal Action Procedures - Hire Purchase Loan (Motor Vehicle) - Part 4 - 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.


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


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. 


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