KUALA LUMPUR, Oct 1 — Consumers applying for personal financing with amounts exceeding RM100,000 will need to attend and complete a financial education module, according to Bank Negara Malaysia (BNM).
In its policy document on personal financing released yesterday, the central bank said these were among its new requirements.
The policy document aims to promote prudent and responsible financing practices with respect to the provision of personal financing by financial service providers, while encouraging responsible borrowing behaviours by financial consumers.
It is also to ensure clear reporting by financial service providers about BNM’s existing expectations when applying for a 10-year maximum tenure for a home financing product or for financing secured by an unencumbered property for personal use.
It also prohibits the offering of personal financing where interest/profit charges are computed using a flat rate and/or the Rule of 78 method, which refers to an interest/profit calculation method.
It also reinforces expectations for financial service providers to disclose the effective interest/profit rate to financial consumers.
With intense competition in the retail credit market, changes have been observed in the lending practices of credit providers in the personal financing segment, contributing to unaffordable borrowing by households, the policy document overview said.
Of specific concern is the emergence of new financing products that give the appearance of affordable borrowing but which actually encourage the imprudent accumulation of debt.
Financial consumers cannot afford this without a significant risk of hardship over the duration of the financing facility due to inadequate financial buffers, it said.
According to the document, financial service providers are already required to conduct suitability and affordability assessments for each new and additional financing facility offered to financial consumers, but more specific requirements are necessary to prevent unhealthy developments in the personal financing segment.
This policy document applies to all licensed banks, licensed Islamic banks and prescribed development financial institutions, effective immediately.
