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Debt collection must be regulated

The country’s household debt is high at 88 percent of the Gross National Product and with an average debt repayment ratio of around 44 percent (that means that 44 percent of the income goes to settling debts). Furthermore, as many as 55 people on average are being declared bankrupt every day.

That means that many people have been unable or may soon be unable to pay their monthly instalments. With so many Malaysians in debt it makes sense to regulate the debt collection business.

Bank Negara has come up with a circular on Fair Debt Collection Practices to protect defaulting borrowers. The circular is a comprehensive and commendable but it applies only to institutions that come under the supervision of Bank Negara.

Thus debt collectors have a free hand; debtors have been harassed at ungodly hours and ‘served’ with letters that threatened to have them ‘arrested’ if the debt is not paid up.

Regulation will lay down the standards that are expected of those involved in the collection of consumer credit debts.  It should cover the following:


Regulating debt collectors starts with licensing. The licence should be renewed annually so that unscrupulous debt collectors can be weeded out. Those who break the law will be subjected to fines and have their licenses revoked.

Prohibited practices

Debt collectors may not harass or mislead the debtors.

To prevent physical or psychological harassment, debtors cannot be contacted at unreasonable hours or with unreasonable frequency, be publicly embarrassed or subjected to physical threats or harm.

False misrepresentation of legal authority should be an offence. Debt collectors have been known to falsely imply that court action can or will be taken against the debtor when they are in no position to do so. Most debtors are unaware that without a court judgment, such court proceedings are not possible. Often the debtor is frightened by the legalese used in the letter.

Debt collectors should not mislead debtors by pursuing a debt which is already statute barred. (i.e. the debt is more than six years old cannot be recovered though there are exceptions to the case.)

Evidence of debt

When existence of the debt is being disputed no action should be taken to recover the debt until proof of its existence is provided.

Each letter demanding payment should give details about the amount owed after the last payment and the interest charged since then. Debtors may admit that they owe money but dispute the sum involved.


Charges for debt recovery should be reasonable and there should be a limit on the maximum charges that can be levied. Unless it has been so stated in the credit agreement, the debtor cannot be held liable for the recovery charges.

Credit rating agencies

Finally, companies should not be allowed to provide names of debtors to any credit reference agency. This is sneaky and unfair method of forcing debtors to pay up loans that could be statute barred or too small to pursue in court. Debtors  are ‘blackmailed’ into settling the sum purported owed in their credit report if they are in a hurry to get their new loans approved.

Only with legislation on debt collection can debtors get fair treatment.


SM MOHAMED IDRIS is president, Consumers Association of Penang (CAP).

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