The Consumer Credit Oversight Board (CCOB) is seeking public feedback on the proposed regulatory framework for credit businesses in Malaysia.
The proposals outlined in this second public consultation paper (CP2) will provide further details on the implementation of the Consumer Credit Act (CCA) which is targeted to be enacted by year-end.
The immediate focus of the CCOB in Phase 1 (from 2024 to 2025) will be on non-bank credit providers and service providers which are currently unregulated including those carrying on Buy Now Pay Later (BNPL) activities.
Non-bank credit providers which are currently regulated by a Regulatory and Supervisory Authority (RSA) such as moneylenders, pawnbrokers and hire purchase companies, will not be required to secure authorisation from the CCOB in this phase.
The transfer of powers pertaining to the regulation of existing credit service providers that are under the purview of the Ministry of Local Government Development (KPKT) and Ministry of Domestic Trade and Cost of Living (KPDN) to the CCOB is expected to take place only in Phase 2 which kicks off after 2025.
Details on the licensing and registration process
In assessing an application for authorisation, the CCOB will look into 4 criteria; organisational structure, shareholding composition, financial resources, as well as qualification and competencies of key personnel.
In the event where an entity intends to carry on multiple credit (or credit service) activities, the CCOB will coordinate with the relevant authorities.
They will be expected to demonstrate that they have the requisite system and procedures in place to monitor the relevant regulated activities and avoid any conflicts of interest.
Following the enactment of the CCA which is targeted in the 4th quarter of 2023, there will be a grace period of 6 months for all existing non-bank credit service providers covered under Phase 1 to secure authorisation.
The CCOB’s authorisation is a one-off process and will take up to one to three months.
CCOB will turn towards digital technologies
The CCOB said that it will leverage on digital technologies from the onset to operate at scale in regulating the conduct of industry players in the consumer credit market.
Starting at authorisation, industry players are expected to submit their data digitally via a one-stop portal that will take into consideration the different consumer credit business requirements.
This will be an integrated complaints system driven by an Application Programming Interface (API) that will be freely accessible to industry players to ease regulatory costs and reporting obligations.
The API-powered platform will also publish information on regulated industry players, allowing the general public to validate their credibility.
Minimum financial requirements
CCOB outlined that a credit provider and credit service provider must have sufficient financial resources commensurate with the nature, complexity and scale of its business.
Together with the submission of the annual audited financial statement, the board of a credit provider or credit service provider is expected to submit a written undertaking or confirmation that the credit business or credit service business has adequate financial resources for the next 12 months.
Here are the minimum financial requirements, which have been benchmarked against those set by BNM for e-money and money services businesses as well as KPKT for moneylending and pawnbroking businesses.
Crackdown on deceptive and aggressive advertising
CCOB is seeking to ensure that advertisements and promotional material on credit or credit services are clear and not deceptive.
Important information, such as key product features, risks and any applicable fees and charges that are likely to affect credit consumers’ borrowing decisions must be prominently displayed.
These entities need to ensure that any warnings or disclaimers in relation to an advertised credit product or service are not obscured or disguised by the content or design of the advertisement.
Additionally, the credit provider/credit service provider cannot adopt aggressive tactics such as harassing or pressuring customers to sign up for their products or services.
They are also not allowed to make false commitments or representations to potential customers.
The CCOB received feedback from the industry that was concerned that the ‘without interest’ phrase in the BNPL definition may hinder industry development and some have suggested that the definition be clarified to ‘without incurring compound interest’.
Responsible lending through proper credit checks
Credit provider will have to conduct an affordability assessment on a consumer prior to entering into an agreement with them or when increasing the amount of credit provided.
They will need to obtain information such as their financial means (through salary slips, EPF statements, bank statements or tax returns) or outstanding debt obligations and repayment history from reliable sources such as from a registered credit reporting institution.
CCOB also recognises the emergence of the use of alternative data points for the assessment and said that flexibilities may be considered for entities applying such data points.
Credit providers will have to apply the debt service ratio (DSR) computation to facilitate the assessment of these consumers’ ability to meet the repayment obligations.
Abu Hassan Alshari Yahaya, Bank Negara Malaysia‘s Assistant Governor and the Head of the CCOB Task Force said,
“It is critical that credit providers and credit service providers are regulated and conform to high professionalism or conduct standards. We will continue our extensive engagements with the currently unregulated industry and consumers to deliver a practical regulatory response.
The aim is to strengthen the protection for consumers while supporting the development of a consumer credit industry that effectively serves the needs of individuals and small businesses.”
Feedback and comments can to be submitted to the task force by 15 May 2023 via email at CCAConsultation@bnm.gov.my or this form here.
