It is most unfair to expect consumers to sign a contract which gives the other party absolute discretion to vary any of the terms that were already agreed upon. Yet this is what consumers are subjected to when they sign their housing loan agreements with banks.

Bank loan documentation always provides the bank freedom to vary their interest rates at any time. The borrower has no say in this, which could be changed to a higher rate than which he had committed to.

Some of the current terms pertaining to interest rates that can be found in loan documentation are:-

‘As specified in item 3 of this Letter of Offer subject always to the absolute discretion of the Bank to carry the rate from time to time whether by varying the Bank’s base Lending Rate (BLR) and/or the margin or spread above the BLR or otherwise or pursuant to item 14(d) of the Letter of Offer’

‘….impose additional conditions, amend any terms and conditions governing the bills facilities and revise/vary the interest rates and other charges from time to time at the Banks’ absolute discretion’.

Oftentimes such terms are not highlighted to borrowers who are under the impression that interest rates would vary only if the BLR is changed, not by any other means. For the majority of borrowers, the main factor when deciding whether to take up a particular bank’s housing loan is interest rate charged.

Since the interest rate is the very core of the agreement, banks should not be allowed to change it at its own discretion. Giving one party the right to unilaterally change the terms of the agreement is generally not tolerated in any contracts.

Yet for years borrowers have been putting up with this unfair situation because Bank Negara has yet to put a stop to it. Will Bank Negara finally act to protect borrowers?

The writer is president, Consumers Association of Penang .