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. 

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