Hire Purchase Law

Hire Purchase Law


Let’s begin by first defining what hire purchase is, it is basically a system of acquiring goods on credit whereby the seller of these goods will then be regarded as the dealer, the purchaser will be the hirer and the finance company is the owner. The ownership of these goods that are bought on hire purchase will not pass to the hirer at the time of the hire purchase agreement or upon the delivery of the goods.

Instead the ownership of the goods will remain with the finance company until the hirer will be able to fully settle the price that has been agreed upon in the hire purchase agreement.

The hire purchase agreement which is commonly known as the H.P. agreement must be made in writing and then it must be printed in a font size that is not smaller than 10 points. You should also take note that any form of oral agreement is not valid in the hire purchase agreement.

The Hire Purchase Act 1967 is the main legislation that governs the hire purchase transactions in Malaysia. This particular act came into effect on the 11th of April 1968 after the hire purchase became an increasingly popular means of acquisition.

The following list will show the goods that can be bought on hire purchase in Malaysia and they include;

  • All types of consumer products
  • Motor vehicles that include motorcycles, goods vehicles where the maximum permissible laden weight does not exceed that of 2,540 kilograms, invalid carriages, motor cars that include taxi cabs and hire cars as well as buses which includes stage buses.

In Malaysia the most common type of hire purchase is for the purchase of motor vehicles.

 

Who should sign the hire purchase agreement?

A hire purchase agreement must be signed by or on behalf of all the parties that are involved in the agreement. However you should take note that the dealer, the person that is acting on the behalf of the finance company, the finance dealer, agent must not request an intending agent or hirer to sign a hire purchase agreement or any other form or document that relates to the hire purchase agreement unless that particular has been completed or filled in. This basically means that you should not sign any blank documents, agreements or forms. If a hire purchase agreement does not comply with the mentioned regulations then that particular agreement shall be deemed as void.

 

What are the details that should be stated in the hire purchase agreement?

According to the Hire Purchase Act 1967, a hire purchase agreement must include the relevant information;

  • Specify the number of instalments that should be paid under the agreement by the hirer.
  • Specify the time for the payment of each of the instalments.
  • Specify the address in which the goods under the hire purchase agreement are located.
  • Specify the date in which the hiring shall be deemed to have commenced.
  • Specify the amount for each of the instalments and the person whom and the place at which the payments of these instalments shall be paid.
  • Contains the description of the goods that will be sufficient enough to identify them.

Also, the hire purchase must also be set out in tabular form;

  1. Cash price – the price during the time of the signing of the agreement the hirer have purchased the goods for the cash
  2. Deposit – the amount that is paid by the deposit
  3. Freight or delivery charges in any – the amount that is included in the total amount that is payable to cover the expenses of the delivering of the goods to the hirer
  4. Vehicle registration fees – any amount that is included in the total amount that is payable to cover the vehicle registration fees in term of the goods
  5. Insurance – any of the amount that is included in the total amount that is payable for the insurance in terms of the goods
  6. The total amount that is referred to in i, iii, iv and v, less ii.
  7. Terms charges or interests – the amount of any of the other charges that is included in the total amount that is payable
  8. The annual percentage rate for the terms of charges which will then be calculated in accordance with the formula that has been set out in the seventh schedule of the hire purchase agreement.
  9. The total amount that is referred to in vi and vii which describes the balance that was originally payable under the agreement
  10. The total amount that is payable

If a hire purchase agreement does not comply with the mentioned regulations then that particular agreement shall be deemed as void.

 

If I am buying two vehicles under the hire purchase agreement will I be able to enter the same hire purchase agreement for the two items?

The simply answer to this is no. According to the Hire Purchase Act 1967 there will have to be a separate hire purchase agreement in terms of each of the item of goods that were purchased. However, you should take note that any of the goods that are essentially similar or complementary to each other and is sold as a set will be regarded as one item. If a hire purchase agreement does not comply with the mentioned regulations then that particular agreement shall be deemed as void.

 

What are the actual procedures in making a hire purchase agreement?

In any of the hire purchase agreement there will always be a dealer and usually a seller, by whom or on whose behalf the negotiations will lead in making of the hire purchase agreement with the finance company that were carried out. If the negotiations between the parties are successful then the prospective hirer will then submit their financial statements as well as their supporting documents to the finance company for the approval of the hire purchase facility or loan.

The finance company may also require the prospective hirer to furnish a guarantor in order to guarantee the performance of the prospective hirer under the hire purchase agreement. You should take note that a finance company will not finance a loan for more than 90% of the cash price of the particular goods. This means that the hirer will be required to pay more than 10% of the cash price of those goods.

The hirer can also agree to pay more than 10% while the balance can be paid in instalments under the hire purchase facility. After the hire purchase facility has been approved, the finance company will then send a letter of undertaking to the particular dealer in order to inform them of the approved hire purchase facility.

All the parties that are involved will then be required to sign and enter into a hire purchase agreement. However you should take note that the hire purchase agreement should be duly completed before it can be signed by the parties that are involved.

The finance company must then serve on the hirer and the guarantors a copy of the agreement within 14 days after the making of the hire purchase agreement. If the finance company fails to do so within the specified time then this would render the hire purchase agreement unenforceable. The documents that are to be served to the hirer or guarantors can either be;

  • Be delivered to the specific person personally, or

  • By posting it to the person using registered post that is addressed to the last known place of business or residence.

It is best advisable that you always keep all the documents that pertain to the hire purchase agreement in a proper place should you need it in the future or when the situation calls for it.

 

How much can a finance company charge a hire for late payment?

The finance company will be able to charge the hirer at a rate that does not exceed that of 8% per annum in simple interest that is calculated on a daily basis or any other rate or interest as may be prescribed.

 

Is it possible for a hirer to transfer the right, title or interest to another person under the hire purchase agreement?

It is possible for the hirer to transfer or assign the right, interest, or title under the hire purchase agreement with the consent from the finance company or if the case arises where the consent has been unreasonably withheld then it can be done without the consent form the finance company.

A finance company will not be able to refuse a consent to the assignment on the grounds that they require other or additional guarantors in order to guarantee the assignee’s obligation and will also be deemed as unreasonable if the assignee has already furnished the same amount of guarantors that was furnished by the hirer in order to guarantee their obligation under the hire purchase agreement as the guarantors for their obligation under the hire purchase agreement or if the same guarantors who have already guaranteed the hirer’s obligation under the hire purchase agreement have also agreed to guarantee to the assignee’s obligation under that particular agreement.

The hirer can also apply to the High Court so that they can make an order in declaring that the consent of the finance company to that particular assignment was unreasonably withheld if the hirer has already may the reasonable request to the finance company for the consent to the assignment to the interest, right and title and the finance company refuses or fails to acknowledge the hirer’s consent.

Once the order has been made by the High Court the consent from the finance company will be deemed as to be unreasonably withheld. However the hirer should take note that there are certain conditions that need to be met before the consent to the assignment of the right, interest and title of the hirer can be granted under the hire purchase agreement and they include;

  • All the default payment under the hire purchase facility has already been settled

  • The hirer and the assignee will have to pay any of the reasonable costs that was incurred by the finance company such as the stamping or the registering of the assignment agreement or the counterparts

  • The hirer and the assignee will also have to execute and deliver to the finance company as assignment in a form that has been approved by the finance company whereby it will not affect the continuing personal liability of that particular hirer in respect to the assignee that agrees with the finance company who will be personally liable to pay for the instalments that have remained unpaid and to also perform as well as observe all of the stipulations and conditions of the hire purchase agreement during the remainder of the term thereof and whereby the assignee indemnifies the hirer in respect to those liabilities

 

Do I get a payment receipt for the instalment payment that I have made?

Yes you will get a payment receipt for the payment that you have made. A finance company, agent or any other person that is acting on the behalf of the finance company that collects the payment in respect to the hire purchase agreement must issue a receipt to the hirer in terms of each of the payment that was collected. Anyone that contravenes this particular rule shall be guilty of the offence and upon conviction they will be liable to a fine not exceeding the amount of RM3000 or to an imprisonment for a term not exceeding 6 months or to both.

As for the hirer they should always keep the receipts upon payment in with regards to the hire purchase agreement and those receipts should also be filed in a proper. You should also make sure that you do not pay the instalments to any of the unauthorized agents or persons.

Does the finance company have the duty to inform the hirer when the authorized agent or person is unable to collect the payment anymore?

In this particular case the finance company will have the responsibility to inform the hirer. When it has come to the knowledge of the finance company that there are any agents or person that is acting on the behalf of the finance company to collect any of the payment in respect to the hire purchase agreement has already ceased to the agent or person that is authorized to act on their behalf, then it shall be the responsibility of that particular finance company so that they can inform all the hirers regarding about this matter so that they know that the agent or person has ceased to be authorized to carry out the responsibility and that no further payment should be made to that particular person.

 

If I have enough money, is it possible for me to settle the hire purchase loan in one lump sum instead of paying the monthly instalment under the hire purchase agreement?

The short answer to this is yes, you can. However before you are able to this you will need to provide notice in writing to the finance company stating your intention to do so, on or before the date that has been specified for the purpose that is stated in the notice. The notice that you plan to submit to the finance company can be served either by delivering it to the finance company personally or you can also choose to post it using registered post to the address of the last known address.

After that is done you will then be required to make the payment of the net balance that is due under the hire purchase agreement. The net balance due under the hire purchase agreement is the original balance that is payable under agreement less than;

  • Any of the amount that is paid other than that of the deposit, by or on behalf of the hirer under the agreement, and

  • If you require for any of the contract of insurance to be cancelled, the statutory rebate for insurance

  • The statutory rebate for interests or terms that is charged

As the hirer you may also exercise the right to early settlement of the hire purchase loan;

  • If you have returned the foods to the finance company within 21 days after they have serviced to you a Notice of Intention to Repossess, upon payment to the finance company (within 21 days after the serving of the Notice to Hirers under Section 16 to you) the net balance due under the Hire Purchase Act 1967

  • During any time during the continuance of the hire purchase agreement

  • If the finance company has already taken possession of the goods, upon the payment to the finance company (within 21 days after the serving of the Notice to Hirers under Section 16 to you) in addition to the net balance due together with the reasonable costs that includes any of the costs of storage, maintenance or repair of the goods that was incurred by the finance company incidental of the taking possession of the goods


Is it considered to be compulsory for the hirer to inform the finance company when the goods have been removed from the address that has specified in the hire purchase agreement?

The simple answer to this question is, yes. If the hirer for any reason has removed the goods from the address that is stated in the hire purchase agreement, then it is the responsibility of the hirer to inform the finance company in writing and inform the finance company personally; of the new address where the goods are being kept and the date as well as the circumstances in which the goods were removed or taken out from their possession.

If the hirer does not inform the finance company regarding about the relocation of the goods within 14 days of the removal then they will be guilty of the offence and upon conviction they will be liable to a fine not exceeding the amount of RM3000 or to an imprisonment of a terms of not more than 6 months or to both.

Furthermore the finance company can also at any time that they wish serve a notice to the hirer in writing requiring them to state where the goods are presently stored or if the goods are not in the possession of the hirer then they should state to whom the goods have been delivered to. For the hirer that does not provide information regarding the location of the goods within 14 days or if the information that is provided by the hirer is found to be false then they shall be guilty of the offence that they have committed and upon conviction they will be liable to a fine not exceeding the amount of RM3000 or to a term of imprisonment of not more than 6 months or to both.


What will happen if a hirer defaults in the payments of the instalments?

If the hirer for any reason defaults in the payments of the instalments under a hire purchase agreement the finance company may enforce;

  • Any of the contract of guarantee that relates to the agreement

  • The agreement against the hirer

  • Any of the rights to recover the goods from the hirer

 

What should be done if the goods under the hire purchase agreement are lost?

The first thing that you should do when the goods comprised in a hire purchase agreement is lost is to make a police report at the nearest police station regarding the matter. After that you will be required to inform the finance company either in person or through writing the date as well as the circumstance in which the goods were lost.

You should take note that if you do not report this matter to the relevant authorities within 14 days then you will be guilty of the offence and upon conviction you may be liable to a fine not exceeding the amount of RM3000 or to imprisonment for a term not exceeding 6 months or to both.

 

How does a finance company enforce the hire purchase agreement against a hirer?

The finance company can enforce the hire purchase agreement against a hirer by repossessing the goods that arises out from any of the breach against the agreement that relates to the payment of the instalment where there had been two successive defaults of the payments or there was a default of the last payment.

As for the finance company, they would have already served on the hirer a Notice of Intention to repossess and where the period that is fixed by the Notice of Intention to repossess has already expired, which will not be less than 21 days after the service of the notice.

The notice that is required to be served to the hirer can be delivered in either two ways and they include by either delivering the notice the hirer personally or by posting it using registered post that is addressed to the last known address of residence of business.

 

I have already received a notice of intention to repossess from the finance company. Unfortunately I am currently experiencing financial problems and cannot afford to pay the instalments. What should I do?

In such situation arises then it is best advisable that you return the goods to the finance company within 21 days after the Notice of Intention to Repossess has been served to you rather than waiting idly by for the finance company or its agent to repossess your goods instead. When you do this you will not be liable to pay for the cost of storage, the cost of repossession and the cost incidental to the taking of the possessions.

While you will not be liable to the costs that were mentioned if you act early, you will still be liable for the finance company’s loss unless the value of the goods that were being disposed of are sufficient enough to cover your liability. You can also introduce another person to the finance company that is prepared to buy the goods for cash at a price that is not less than the estimated value of the goods in the notice.


Is it possible for a finance company to repossess the goods if there are no defaults in the payment under the hire purchase agreement?

Yes, it is possible for the finance company to take possession of the goods comprised in a hire purchase agreement without notice if there are reasonable grounds to believer that the goods that are under agreement will be removed or concealed by the hirer contrary to the provisions of the agreement. However to prove the existence of such claims will lie upon the finance company.

 

Is it possible for the finance company to repossess the goods if the hirer has passed away?

The short answer to this is yes, if the hirer has passed away then the finance company is this case can exercise their power in taking the possession of the goods comprised in a hire purchase agreement that arises out from any of the breach of the agreement that relates to the payment of the instalments where there have been 4 successive defaults in the payment.

 

What are the procedures that are involved during the repossession?

The procedure for the actual repossession is regulated under the Hire Purchase Regulations 1976 and it is as follows;

Before the finance company can take possession of the goods as outlined in the hire purchase agreement, they must first inform the hirer the name as well as the address of the finance company to which they belong. If the finance company has sent an agent to the repossess the goods then the agent will be required to show the hirer the documentation that proves their status which will be usually issued by the finance company and also the identity card.

The authority card must have all the relevant information such as the name and address of the agent, the nature of the appointment of the agent, the photograph of the agent, the name and address of the finance company as well as the signature of the authorized person from the finance company. The finance company or the agent must also show the hirer or the occupant of the hirer’s premises their identity card before they are able to repossess the goods.

 

What are the procedures after the goods have been repossessed?

After the finance company has already taken possession of the goods that have been outlined in the hire purchase agreement, the finance company will then be required to personally deliver a document to the hirer which will include;

  • The date when the finance company took possession of the goods

  • The place where the finance company took possession of the goods

  • A short description of the goods that were repossessed

  • The time at which the finance company took possession of the goods

So that the receipt of the goods are acknowledged

The finance company will be required to send the documents as mentioned immediately to the hirer after they have taken possession of the goods if the hirer was not present at the time of the repossession. After that a Notice to Hirer under Section 16 will be served to the hirer and all the guarantors of the hirer within 21 days following the repossession of the goods by the finance company.

If the notice regarding this matter is not served to the relevant people then the rights of the finance company under the hire purchase agreement will thereupon cease. However if the hirer exercises their rights according to the hire purchase agreement in order to recover the goods that were taken into possession by the finance company, then the notice will be deemed to have been duly served on the hirer.

The costs for the repossession of the goods will be borne by the hirer and they include;

  • The cost for the storage of the goods

  • The cost for the repossession of the goods

  • The cost incidental of taking possession

 

What should I do after the goods have been repossessed and the notice to the hirer under section 16 has been served?

Once the finance company has taken possession of the goods under the Hire Purchase Act 1967 and has also served on you the Notice to Hirer under Section 16, then there are several actions that you can consider taking and they include;

  • Getting back the goods within 21 days after you have given notice your intention to finalize the hire purchase agreement and pay for the balance outstanding under the agreement and the cost for the repossession of the goods

  • Getting back the goods within 21 days where you require the finance company by notice in writing that is signed by you to redeliver the goods to you and within the 21 days after giving the notice you reinstate the hire purchase agreement by paying the arrears and any of the interest due on the overdue instalment, the repairs or maintenance, the cost of storage, redelivery and the cost for the repossession of the goods.

  • If you do not intend to take back the goods, reinstate or finalize the hire purchase agreement then you will be liable to the losses of the finance company. However if the value of the goods that were repossessed are sufficient to cover your liability then you will not be required to compensate for the loss. And if the value of the goods is more than sufficient to cover your liability you may even be entitled to a refund.

  • If you do not intend to take back the goods, reinstate or finalize the hire purchase agreement, then you can serve a written notice to the finance company informing them to sell the goods that were repossessed to any of the cash buyer that is introduced by you that is willing to pay the finance company’s estimate of the value for the goods.


When will the finance company dispose of the goods that have been possessed if the hirer does not intend to pay for or to reinstate the hire purchase agreement?

When the finance company has taken possession of the goods under the hire purchase agreement, they will then sell or dispose of the items depending on the nature of the goods, either;

  • With the written consent from the hirer, or

  • With the expiration of the 21 days after the date of the service of the hirer of the Notice to Hirer under Section 16.

If they finance company wishes instead the sell the repossessed goods they can do so by either;

  • By public auction where the finance company will be required to serve or caused to be served to the hirer a copy of the notice of the public auction. You should take note that the notice should not be less than 14 days from the date of auction.

  • If it is through other means than public auction, then the finance company will then be required to give the hirer an option to purchase the goods at the price which they had intended to sell them if that particular price is less than the finance company’s estimate of the goods that were repossessed.

 

When will my liabilities as a guarantor cease under the hire purchase agreement?

As a guarantor your responsibility is to guarantee to the finance company that the hirer will perform their obligations and in the case of the hire purchase agreement, the guarantor will undertake to repay the hirer’s debt to the finance company should the hirer for any circumstances fail to pay the debt by the due date.

As such your liability as a guarantor will only cease when the total amount that the hirer owes to the finance company under the hire purchase agreement has been settled. This means that the liability of the guarantor will continue even though the finance company has taken possession of the goods according to the provisions that are found in the hire purchase agreement.

The guarantor’s liability is strictly limited to those that have been imposed on the hirer by that of the hire purchase agreement. So the guarantor’s liability will not be extended to cover the new agreement that has been entered by the finance company and the hirer relating to the same goods that is stated under the hire purchase agreement.

 

What are my rights as a guarantor under the hire purchase agreement?

As a guarantor you can only discharge your liability under the hire purchase agreement by paying the finance company the amount that is due by the hirer. Upon the payment of the amount you will also be entitled to;

  • Insist that you want the transfer of all the securities that is taken by the finance company from the hirer so that you can secure performance of the hirer’s obligations.

  • Sue the hirer in the name of the finance company for any of the breaches of the hirer’s obligation under the hire purchase agreement subjected to providing the finance company with the suitable indemnity for the costs or the sue in your own name if you have taken a legal assignment of the hire purchase debt.

As a guarantor you are also entitled in the event that any of the claims that are made against you by the finance company on the guarantee to avail yourself of any of the set-off or counter-claim which the hirer may possess against the finance company.

You will also have the rights of a guarantor against the hirer;

  • To compel the hirer to pay for the instalments in terms of the hire purchase agreement as and when they are due to be paid and for this reason they may apply to the Magistrate Courts for the order to make sure that it happens.

  • To be entitled to be indemnified by the hirer against any of the claims that are made by the finance company on the guarantee.

 

Who should ensure that the goods under the hire purchase agreement is being insured?

The finance company at the expense of the hirer will make sure that the goods will be insured against any form of risk that the finance company may think fit in the name of the hirer and this includes;

  • Motor vehicle for the first year only

  • All of the other goods for the duration of the time that the goods remain under the hire purchase agreement

If the goods are a motor vehicle in terms of the hiring period then it will be the responsibility of the hirer at their own expense to make sure that the particular goods are insured in the name of the hirer immediately following the first year. The hirer must also inform the finance company not less than 14 days before the expiration date of the insurance policy in with regards to the renewal of the insurance policy for the motor vehicle.

If the hirer has failed to renew this particular insurance policy then the finance company will be take up the responsibility to have the motor vehicle to be insured and any of the costs will be incurred by the hirer. This being said the finance company does not have the power to request the hirer to insure any of the risks with any particular registered insurer.


What can be done if the notice or the documents that are required to be served to the hirer cannot be served to them either by mail or personally to them?

Where it appears that it is impracticable for any sort of reason to serve a notice or a document that is required or authorized to be served to the hirer either by delivering it them personally or by posting it using registered post to the last known address of residence or of business then according to the Hire Purchase Act 1967 section 47A, the finance company can make an application to the Magistrate Court to so that an order for substituted service of the notice or document.

The finance company that is making the application for an order for the substituted service must makes sure that the notice is supported by an affidavit that states the facts in which the application is founded. The substituted service of the notice or document will be affected by taking measures as decided by the courts to bring attention regarding the documents or notice to the person that is being served and it will usually be in the form of an advertisement in the local newspaper.

 

What can be done if the hirer has removed the goods from the original storage and has also refused to deliver the possession of the goods to the finance company?

In cases where the hirer or any other person that is in possession of the goods have refused or failed to deliver the possession of the goods to the finance company, then the finance company can serve to the hirer a notice of demand that is made by the finance company or by an authorized of the finance company on their behalf.

After that the finance company can put in an application in Form 137 and make an complaint to a Magistrate Court that is also supported by an affidavit stating the facts as well as the grounds in which the application was made.

Once the application has been processed then the Magistrate Court can summon the person/people that has been named in the complaint to appear before the court and during the court hearing it appears that the goods in question are being detained without just cause then the court may order that the goods to be delivered to the finance company at or before the time as well as the place that has been specified by the finance company.

Anyone that neglects or refuses to comply with the court order shall be guilty of the offence and upon conviction, they will be liable to a fine not exceeding the amount of RM3000 or to imprisonment for a duration not exceeding that of 6 months or to both.

Is it an offence for a hirer to sell the goods in a hire purchase agreement?

The short answer to this question is yes. According to the Hire Purchase Act 1967, anyone that tries to dispose or tries to sell the goods as listed in the hire purchase agreement, or in fact by any other means which includes defrauds or attempts to defraud the finance company will be guilty of the offence and upon conviction they will be fined for an amount not exceeding that of RM10, 000 or to imprisonment for a term not exceeding 3 years or to both.

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