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

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...

PART 5 - THE COLLECTION DEPARTMENT

When I was young, so much younger than today, I was impressed the first time I stepped into a Bank. Prior to that, the closest thing to the Bank that I have encountered was the Post Office Savings Bank with its cramped environment with various transactions such as stamps purchase, "Money Order", "Postal Order" and savings account . 

When I was looking at the "Bank Tellers" at the counter with an "officer" or "manager" at the back who seemed so relaxed with nothing much to do except occasionally "signing" vouchers passed by the Bank Tellers, I said to myself "It would be great if I can work in the Bank, the job looks easy enough, not to mention "glamourous" and high self esteem". It was fated that I got a job with a financial institution with the rank of an officer (necktie and all) but with a pay half of that of a clerk. Only then that I realised that behind the "facade" lies a "whole new world" of various departments one of which is the collection department and the job is far from "easy"

So, before we go into the collection procedures, it is also good to have a look at the people behind the collection department, the"bad guys" (the "unsung heroes depending on how you look at it) of banking apart from the "acceptable sorcery and evil" practice of Banking which creates money out of nothing and charging interest/USURY. These are the people whose job is to ensure that loans and interest are collected in order to keep the "Banking engine" running.

Don't get me wrong though. I am not "demonizing" the collection gang. I have worked there before. I still have friends working in the Bank. If you know them, they are some of the nicest people around. If you happen to be their neighbour, you might only know them as working "in the bank" not knowing which department he or she is working in. They may even be the "model citizen" in their neighbourhood. The point is that they are just doing their job and it is the nature of the job that makes them look "bad" and in the negative light of things.If all debts are paid promptly, you don't even need the collection department.

You may start to question why I am suddenly seem to be defending them. Well, as with the usurious Banking system, it is "by design" and it comes as a package of oppression due to Usury/RIBA. Human beings also come with different "packages" of traits and behaviours so there will be some collection personnel with sadistic tendencies and simply loves to make other people's life miserable and some are known to make it  something personal. The borrowers too are of the same mix and sometimes it is the borrowers who make life miserable for the collection staff.    As I said before in the first article, I am just giving a level playing field though some of you (the Bankers of course) may cry foul on this "initiative" of mine.

In order to at least rationalise the "initiative", have you seen some videos or read articles on a crime being committed in the hope of giving information and the "modus operandi" of the crime while at the same time giving some ideas for criminals or would be criminals to learn some new tricks? Well this is something similar but the similarity ends here. There are certain laws and guidelines to follow for the protection of both the creditors and the debtors. Both creditors and debtors have their fair share of abusers of the system but in the process, the innocents and gullible get victimized though it is not entirely their fault. This is the dilemma. To tell or not to tell but I feel "telling the story" would do a lot of good than not doing so. If you look at the graphic below, a well informed borrower will no longer be easily bullied by the debt collector:

In the entry level training for would be collection staff, one of the "facts" being taught are the traits and behaviours of borrowers and its relation to the potential of getting the loan payment. It is pretty straightforward as shown in the graphic below:

We shall briefly look into each category as detailed below:

1) ABLE AND WILLING TO PAY - A creditors' dream customer but that's what it is, a dream as not every borrower is in this category. These are the people who "live within their means" and will always ensure payment is made promptly at least until some financial calamity disrupts this behaviour.

2) ABLE BUT UNWILLING TO PAY - (Type 1)  The type who typically "live beyond their means" but with some knowledge of collection procedures and "loves" being on the edge with "stuntman" mentality. They know the limit of default before legal action is taken. Most of the time they are juggling their expenses for other things other than the monthly loan commitment. Not much of a problem. Needs constant follow ups and "mild" legal action (Lawyer letter of demand)  when needed.

3) ABLE BUT UNWILLING TO PAY - (Type 2) A bit similar to the type 1 above but not really familiar with legal action and procedures maybe due to the pressures of juggling expenses leading to absent mindedness or simply being absent minded. Easily pressured to make payment with "mild" or "a bit heavy" threat of legal action.

4) UNABLE BUT WILLING TO PAY - The type who lives "well beyond their means" but with all the "good intention" to pay "in good time". They believe that their economic well being will "improve" with yearly salary increment and "someday" will be able to make ends meet.   They don't realise that the debt and usury/RIBA  based system will cause the devaluation and loss of purchasing power of paper money. Therefore their dream of "financial freedom" will never be realised and they will keep on accumulating debt. For these type of borrowers, not really a problem with threats of legal action or initiating the legal action itself.

5) UNABLE AND UNWILLING TO PAY - (Type 1) The type that has "graduated" to living "way above their means" but somehow or rather still being given loan based on "good previous track record" (not badly tainted yet) or based on the technology of "whom you know" or through careless loan processing. Some of them are "well experienced" in legal action being taken against them. May need full fledge legal action and judgment execution to get payment.

6) UNABLE AND UNWILLING TO PAY - (Type 2) This type (not all, some are ok) normally use "non standard" (by "standard" we mean payslips, income tax form, etc) loan documents such as savings passbook, "investment" portfolios (ASB,ASN, MLM statements) and other "supporting" documents. Some are "seasonal' income earners like padi farmers. Some may use the services of "document producers" (they are good, may well be more adanced now) to get the loan or in other words, fraudulent application. At the point of loan application, it is hard to guess who they really are based on the subdued, polite, angelic and innocent looks in their faces. You will only realise their true colours when the loan turns bad and when you try to take legal action, to repossess the car  for example, suddenly a few names will come up. The nicknames of your previously "angelic" borrower become known with names with"dragons" in it, "Taiko" (Big Brother), "Pak Long" (also loosely translated to "Big Brother") and other names indicating their "positions" in society. A pain in the ass, sometimes not worth pursuing. Banks can always write new loans, creating "new money" in the process and charge interest to cover for this bad loans many times over. 

Please take note that the above list is just a sample taken from a myriad of combinations. Just a few main samples to give you the general idea. So, the collection clerks and officers have their work cut out for them or so it seems. Collection is not easy and very few people really enjoy it. Well, maybe some really enjoy arguing with people all the time to release stress. Everyday there will be a lot of "opportunities" to have arguments with customers, some minor, some may be full blown confrontations especially during car repossessions and legal actions being taken. 

Sometimes the “whole village” mob can turn up wreaking havoc at the Bank. Therefore debating and oratory skills are very important for the collection guys and gals. The skills of “passing the buck” is also vital, for example in the event of a car repossession. The officer in charge may pretend to be as shocked as the borrower when the car got repossessed since he/she "did not issue" the repossession order and quickly pointed the finger to “Head Office” (very rarely the borrower will call "Head Office" since he/she would not know who to call anyway), the "main suspect" who printed the order. If only the office printer can speak, he/she will be in hot soup. This requires a lot of practice and it goes with experience.

Typical example of "shocked as a monkey" expression is shown below:

Therefore, collection is an art, there is no rigid rule or script to follow, it is more of adapting one's particular "behavioural style" to a set of standard procedures. Two collection personnel may achieve their objective by using two entirely different approaches. Sometimes you have to combine together to make it work and that requires great acting skills as demonstrated above. The "Good Guy Bad Guy Routine" ala "Good Cop Bad Cop Routine" and other "scenes" worthy of an Oscar are routinely used especially by those who has been working together for a long time and some "scenes" are simply spontaneous which makes it more realistic. Sometimes you wish those scenes were recorded and can be viewed again and again for entertainment or even for training purposes.

Collection also involves investigative work so you have to have a sharp mind and eyes for detail. You have to examine clues and leads you gather yourself or gathered by your colleagues which sometimes may not be up to your "high standards". If you have the ability to change the pitch or tone of your voice, it is a great advantage in doing some "telephonic investigation" to gather information. The ability to master different languages and local dialects is also a definite advantage. In short, this job is not for a cry baby and not everybody are cut out to be a collection man or woman. Maybe we will recreate some of these "scenes" and "CSI stuffs" in future postings.

Apart from the above, collection staffs also need to be good listeners doubling up as "marriage counselors" or "motivational expert". This is due to the fact that sometimes problematic borrowers will come to pour their sorrows and sad stories as to why they defaulted the monthly payment. Some will come alone and some with their spouse (It is hard to tell whether they are pulling a fast one. They also can play the "game").  Sympathy aside, it is the monthly report that matters so with a "heavy heart" and with words like "there is nothing much that I can do but this decision comes from Head Office" the matter is handled professionally (swept aside). Sometimes I feel that loan application forms should also include questions regarding the overall health especially the mental health of the borrowers like the one found in Health Insurance forms. It will save you a whole lot of trouble in identifying problematic borrowers.

So there you go. Some of the things the collection guys and gals do day in and day out. Imagine having to do all this while taking care not to "tarnish" the reputation of their beloved employers (the Banks, of course) and then go back home being exemplary mothers and fathers and repeat the whole thing all over again. Sometimes in the minds of the collection people, how they wish they are doing the loan processing because working at the loans department is more "fun" because they can hang out with the car and machineries dealer (for Industrial Hire Purchase Loan and Term Loan), can have “happy hour” chats and sometimes in order to “please” the dealers in giving “more business” and create “good rapport” they will spend more time together which may include watching football games and some “karaoke” sessions. Customers also are a happy bunch, not to mention having "angelic" traits as described above.

However, the loan processing staffs have targets to meet in terms of loan disbursements every month and sometimes in their eagerness to reach their target and their "closeness" with the dealers may prove to be their downfall. Being "too close" and "buddy buddy" with the dealers and suppliers may "soften" their hearts or blur their judgment resulting in recommending a loan or putting a "good write up" to get the "borderline" or "extremely borderline"  loan approved which may turn "bad" and this has been a "bone of contention" between the collection staff and the loan processing staffs.Sometimes their roles will be switched to have a taste of "the other side" and to the satisfaction of the collection guys, the loan processing staff will have to collect from their own "portfolios" that have turned bad and had gone drown the drain to the cesspool.

On the other side of the fence, the “collection” gang will usually hang out with repossessors and occasionally with lawyers but it is the repossessors and lawyers who are “buying”. Repossessors will hope to get more repossession orders be it the “easy” ones but with the standard price tag as well as the high priced “wanted” vehicles so they will be the first to choose the "easy" and "juicy" ones.

As for the lawyers, either they want more cases or hoping to get paid for work done in the past which has been left unpaid, sometimes for years which is the “norm” in the Banking industry. Normally it is the boss who gets the treat from lawyers, and as for the officers or clerks, they may be invited to tag along if they are lucky.

Before we go into detailed breakdown of the collection process for each type of loan in the next section, it is good to have an overview of the similarities and differences between the legal actions taken to get you mentally prepared for things to come. For those with 1 to 3 months overdue, it is pretty straightforward. No need to move from the office, just pick up the phone and use their “communication skills”. The task is usually given to new clerks or officers under supervision to hone their skills in the techniques of persuasion, soft threats and utter bullshit.

For car and property loans, organized and scheduled actions are provided for by existing laws such as The Hire Purchase Act 1967 (latest amendment 2012) and the National Land Code as well as the normal legal recovery procedures of issuing Letter of Demand, filing summons and execution of judgments obtained from the court. These loans are categorized as “secured” loans where the “subject matter” of the loan being the car or property is normally used as collateral. The main problem or the added "burden" is the “unsecured” loan such as personal loan or credit card loan where the “collateral” is the “belief” that the borrower shall be able to meet the loan commitments based on the supporting documents of his/her  income submitted during loan application. Some may have additional “collateral” in the form of guarantors (which is “easy meat” for threatening borrowers), but with the increasing number of guarantors being made bankrupts for loans that they had little or any benefit at all, that is hard to come by nowadays.

For the “badly impaired” and “severely impaired” loans, it will take more than phone calls or letters to make them “tick”. Field visit is necessary as an investigative or additional tool to pressure the borrower to pay. The main aim of personal visits is to bring “realism” to the threats as opposed to phone calls which is designed for the “weak” and to bring about embarrassment to the borrower be it to co-workers or neighbours up to a point of the borrower would have no choice but to find some funds to “quieten” things up.

Now who is the most suitable for this job? Different Banks may have different policies with regards to the field visit personnel. Some may have special units for this purpose. Some might just require the same collection personnel to do everything from making phone calls, print letters, argue (er.. discuss) with customers and making personal visits. Some might “sub contract” the job to debt collection agencies with the promise of a certain percentage of the collection. Some Banks may “sell” the debt outright with a discounted amount usually those they have already written off and may be too “busy” (or the staff has become "weak"  or it has become too hot to go out nowadays due to global warming or too preoccupied with existing borrowers) to handle since the account has been declared “dead” or has turned into “zombies”. They may want to concentrate on the “living” loans with  higher chances of recovery.

So there you are. Some snippets about the collection team at the Bank. The same cannot be said about the Debt Collection agencies where they do not have the same kind of training the Bankers guys and gals do. They are not lawyer firms (although they have "lawyer sounding" companies like "Mafia Goons Partners & Co, "Max Pain & Associates" and other "professional sounding" names) and they do not have the legal power to do litigation. All they can do is intimidate and harass the borrower to pay and they are very persistent.

Whatever they collect is their livelihood and that is understandable but the way some of them go about their methods are highly questionable. A lot of complaints has been lodged on these agencies but the abuses continues. This is a multi BILLION Ringgit industry and it is highly unlikely that these agencies will fully toe the line because it is their most potent weapon for gullible borrowers. The older the loan the better because the interest on the bad loan would be astronomical sometimes running into hundreds of thousands especially for credit card where the actual balance are normally less than 10,000. The normal trick is to offer unbelievable “discounts” of up to 90% (of course if the interest is 100,000 and the actual loan is 2,000, a “discount” of 90,000 would still give a hefty profit  with just a few phone calls)

That is why the masses need to be informed of their rights and at the same time should be equally responsible for what they have borrowed unless the collection staffs of the Banks didn't do their job properly and have absolved their legal rights to collect the loan within the allowable time limit and simply "pass the buck" (again) to the Debt Collection Agencies hoping to "get lucky" with some of the “old” borrowers which they somehow managed to trace with the advent of technology and “informers” (more on that later) and maybe, just maybe some gullible and ignorant ones not knowing the law of limitation would crumble under their pressure to pay under a few textbook “threats” of legal action and personal visits aimed at embarrassing the borrower to submit payment.

It is also “good” for the Banks to maintain their “clean and professional” image because if the Debt Collection Agency staffs “misbehaved” or went overboard in their collection methods, it is easy to switch to another one and say the previous one did not follow their guidelines to show “utmost professionalism” (some borrowers will testify that this is utter rubbish) in handling such cases  and has since been terminated. This statement will be accompanied by the usual face of "utter shock and disbelief" and the customer may feel "vindicated" before being harassed by another collection agency a few months later. "Lifes goes on" as they normally say. We shall discuss the Limitation Act in more detail with regards to loan recovery in the later part of this article as it needs a special space of its own.

END OF PART 5

PART 4 - TYPE OF LOAN DEFAULTS

As I said before, even in “normal” and “healthy” economic climate there are bound to be loan defaults as it is “by design”. “New money” chasing “old money” or ”other new money” to pay for the loan as the interest has “stolen” from the money supply.

Those who are financially “weaker” will be the ones generally who will default first and others will eventually follow suit. "The design" of USURY or RIBA based system will ensure that new debts will have to be created to pay for the old debt where there will never be enough "money" to go around. For revision of the usurious system, you can visit this link:

Facts About Digital Money

When there is an economic crisis, the loan default rates will multiply many times over. This is where the collection department of Banks and Collection Agencies would have to intensify their collection efforts for their own survival like what happened in the Asian Financial Crisis in 1997. During that time, collection was low, repossession of vehicles reached record highs, foreclosures of property were aplenty and Bankruptcy proceedings were rampant.

The returns from principal and interest were not enough to cover for operational expenses (lower returns of interest portion as loans get "older") and new loans were frozen, so "new money" could not be created with "higher" portion of interest/USURY for the "rolling of expenses". Finally the aid from the government in the form of "bailout" was needed to prevent the Banks from going under and restore the confidence of the people in the monetary system.

Maybe we will have a special session dedicated to the Asian Financial Crisis of 1997 to reminisce and learn from it in order to at least be "better prepared" for the incoming and expected bigger crisis. Many of you readers may still be too young to remember or even still wearing diapers when the said crisis of 1997 happened so it is good to know.

Ok, back to the types of loan defaults. The type of loan defaults can be divided into the following categories (these are my classification and might be slightly different from the classification from Banks and Central Banks)

1)      Potential Non Performing Loan – Loans that are overdue from 1 to 3 months. These are sometimes considered “normal” and “active” accounts but need to be monitored closely. Phone calls and simple reminder letters are normally used.

2)      Non Performing Loan or Doubtful Debts – Loans that have the potential to die off and become bad debts. Usually overdue from 4 to 12 months. More frequent follow ups sre required and normally already under litigation.

3)       Bad Debts – Loans which remain unpaid for more than 12 months.  Either in advanced stage of litigation and depending on the respective policy of Banks, these accounts may be written off and transferred to a department specializing in “cold” accounts. On the other hand, there are some accounts where legal actions are still undergoing would not be written off just yet, just isolated from the “active” accounts. The “income” from the interest from these accounts will be suspended in line with the guidelines from the Central Bank normally from the seventh month of default until the account becomes active again. For “write off” accounts, whatever amount paid is considered as profit after considering all recovery costs since it has been recorded as a “loss”.

The loan recovery process in the above three categories depends on the respective internal policies of the Banks. For the 1 to 3 months category, it is normally handled by the Banks staff because it is relatively “easy”, that is by “cordial” phone calls, sms (text messages) and reminder letters which nowadays generated by computers.

For car loans, it is governed by “The Hire Purchase Act 1967 (latest amendment 2012) where the Banks will have to follow the provisions of the said act in terms of recovery of the vehicle. Legal action may be taken after efforts to recover the car as provided by the act failed.

As for personal loans and credit card loans “affectionately” known as “unsecured loan” (may be “secured” by a guarantor) the usual process of recovery such as phone calls, reminders, lawyer’s letter of demand, court summons and judgment are used.

With regards to property loans, the usual recovery process as unsecured loans will be carried out.  However, when it comes to foreclosing the property, the Banks would have to abide by the provisions of the National Land Code. Wow! That sounds complicated you might say. Don’t worry, I will try to give a detailed info graphics on each recovery process for each loan category in part 6 of this topic.

It is hoped that by knowing the procedures especially the TIME FRAME for each legal action, you will not be bullied with impunity by the Bank or the Debt Collection Agency staff with threats such as "TOMORROW we will make you a Bankrupt" or "TOMORROW we will auction your house" or "TOMORROW we will deduct your salary" and a few other "TOMORROWs"

Nevertheless, we also need to understand that the "collection guys" need to resort to such tactics to pile the pressure on the borrowers to get the debt paid . They are paid to do that and for the Debt Collection Agency staffs, they are actually "collecting" their salary but some have overstepped their boundaries in terms of proper collection guidelines and ethics.

However, please be reminded that if the proper legal procedures has been followed, the above threats are REAL, the bluff is in the timing and time frame or whether it has been executed at all. This is where the borrowers need to be aware of their rights and at the same time be responsible for the agreement that they have signed with the Banks in the first place.

As long as they have the legal right to collect the debt (unless prohibited by the Limitation Act due to "expiration" of the right to claim), they (the Banks and Collection Agents) are entitled to do so. I am not teaching you to run away from your debt but to give you the understanding of the collection procedures and the proper collection ethics and the channels in which you might get help. So keep on reading..

END OF PART 4

NEXT: PART 5 - THE COLLECTION DEPARTMENT

PART 3 - TYPE OF LOANS IN THE HOUSEHOLD DEBT PORTFOLIO

The household loans are typically divided into the following categories:

1)      Housing Loan

2)      Motor Vehicle Loan

3)      Credit Card Loan

4)      Personal Loan

5)      Furniture and Household Items Loan

Housing loans and car loans are the major contributors to the household debt which is understandable given the relatively young population. The lure of “attractive” (low) interest rates managed to soften the impact of the high price of houses and cars which has escalated over the years. The mix of high interest rates and high prices of these two necessities would cripple demand and is not good for the economy. Malaysians has been "enjoying" low interest rates for several years already which has largely contributed to the huge debt bubble.

Credit card debts can be seen as a “side loan” or “supplementary loan” (in the beginning) to cater for petrol expenses and groceries and even dinner at “selected” restaurants when money (from wages) runs out especially after the inflation rate has gone up since January 2014. Of course there those who use credit card to satisfy their “compulsive shopping” habits while digging their financial freedom away. Personal loans are normally used for investment purposes in order to ease their financial burden or simply to cover for their already mounting debts scattered like birds’ droppings.

Personal loans are also used for glamorous engagement and wedding ceremonies successfully propagated by local celebrities which is the trend nowadays in order to “keep up with the Joneses”. This is a recipe for disaster especially if the newlyweds previously had student loans before (called PTPTN here).

After marriage, loans for furniture and fittings as well as electrical goods are easily available through companies like Courts Mammoth, Aeon Credit and Seng Heng with incredible offers like “you will only pay three months later” or “celebrate your Eid or whatever first and pay later” and of course with credit card type interest rates. Another recipe for financial calamity.

So there you are. The various types of debt in the household debt stockpile. Sorry for the long introduction because it has to be done to have a clear understanding of the types of debt involved and you will see the reason behind this as we go along in line with the topic “Debt Collection Agencies – The Collection of Current and Bad Debts”. So bear with me.

With all the monthly loan commitments, some are doing okay with their current income, some are  merely surviving which is not bad but many have to resort to juggle their expenses or juggling their time to earn extra income through side business or part time jobs. Some are committing financial suicide by juggling their credit cards or alternating their monthly payment (pay housing loan, miss the car loan or other loan and change the order of payment next month) so that they are always “on the edge” with regards to legal action.

If everything is stable which means if all prices of goods and services are “static” with no major changes, then well and good. But we are living in a debt based economy where inflation is a necessity. Dependency on the US Dollar as “THE” reserve currency goes to show how precarious is our position now as an economic calamity can happen at any time.

Domestically, the government burdened with debt would have no choice but to reduce subsidies for petrol and other essential items resulting in escalating prices for most food items, services and utilities across the board. This is where the pressure to keep on paying the monthly payments becomes unbearable and eventually loan defaults becomes inevitable. Those in the “I’m okay” and “I have no problem so far” are also affected. Those “I couldn’t afford it, but I want it anyway” group are already in the financial pit of no return.

END OF PART 3

NEXT: PART 4 - TYPE OF LOAN DEFAULTS