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...

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....

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...