Mira Syahida explains the difference between a hire purchase transaction and credit sale transaction
Credit sale in general is defined as purchases made by a consumer that do not require a payment made in full at the time of purchase.
In Malaysia, credit sale is governed under Consumer Protection (Credit Sale) Regulations 2012 which came into operation on 1st October 2012. These Regulations apply to all types of businesses that are required to be registered under any laws relating to the registration of companies or businesses except co-operative societies registered under the Co-operative Societies Act 1993. The most common credit sale in Malaysia involves the purchase of home appliances, furniture and electrical items with seller or credit facility provider such as Courts, Singer and AEON.
According to the Regulations, the term “credit sale” means the sale of goods where –
(a) credit facilities are provided by the seller or the credit facility provider to the purchaser in the sale transactions of such goods;
(b) the purchaser is a consumer;
(c) the goods involved in the credit sales are as interpreted in the Act;
(d) the credit payment involves payment by installment;
but does not include sales where full payment is made via credit card.
Before a credit sale agreement is signed, a seller or credit facility provider must inform the purchaser orally and in written form in a specific document, during the course of making the offer for sale the following information:
(a) the cash price of the goods;
(b) the interest rate imposed;
(c) the period of installments;
(d) the monthly amount payable;
(e) the total price of the goods inclusive of interest;
(f) the ancillary charges;
(g) the delayed payment charge and its formula of calculation;
(h) the total price of the goods inclusive of interest and ancillary charges;
(i) the formula for calculation of rebate;
(j) whether the purchase of goods is subject to a rebate when the goods are promotional goods or when other goods are offered to as a prize for the goods sold; and
(k) the date of delivery of the goods.
The above information shall also be made part of the credit sale agreement entered between the seller or credit facility provider and the purchaser.
The terms and conditions in a credit sale agreement must also include the following details:
(a) the termination of the credit sale agreement;
(b) the implications of default under the credit sale agreement; and
(c) the consultation for settlement with the seller or credit facility provider in the event of default by the purchaser.
Hire Purchase on the other hand is governed by the Hire Purchase Act 1967 and defined in the Act as a letting of goods with an option to purchase and an agreement for the purchase of goods by instalments (whether the agreement describes the instalments as rent or hire or otherwise), but does not include any agreement-
(a) whereby the property in the goods comprised therein passes at the time of the agreement or upon or at any time before delivery of the goods; or
(b) under which the person by whom the goods are being hired or purchased is a person who is engaged in the trade or business of selling goods of the same nature or description as the goods comprised in the agreement.
Both credit sale and hire purchase are thus common but different methods of supplying goods under a credit agreement. The comparison between credit sale and hire purchase are tabulated below:
|CREDIT SALE (CS)||HIRE PURCHASE (HP)|
|Governing Law||Consumer Protection (Credit Sale) Regulations 2012||Hire Purchase Act 1967|
|Parties||Seller, Purchaser and Credit Facility Provider (which can also be the Seller)||Dealer (Seller), Hirer (Purchaser) and Finance Company (Owner)|
|Goods||Goods which are primarily purchased, used or consumed for personal, domestic or household purposes, and includes-
(a) goods attached to, or incorporated in, any real or personal property;
(b) animals, including fish;
(c) vessels and vehicles;
(d) utilities; and
(e) trees, plants and crops whether on, under or attached to land or not,
but does not include choses in action, including negotiable instruments, shares, debentures and money.
| i. All consumer goods.
ii. Motor vehicles including invalid carriages, motor cycles, motor cars including taxi cabs and hire cars, goods vehicles (the maximum permissible laden weight does not exceed 2540 kilograms), buses including stage buses.
|Ownership of Goods||The ownership of the goods passed to the purchaser as soon as the credit sale agreement is made, even if the purchaser has not made any payment yet.||The ownership of the goods is not passed at the time of the hire purchase agreement or upon delivery of the goods but remains in the finance company until the hirer has fully paid the price as agreed upon in the hire purchase agreement|
|Requirements as to form of Agreement||Printed in Arial font in the size of not less than 8 in the national language and the English language and fulfill any other requirement as may be determined by the Controller.||Printed in black in type of a size not smaller than the type known as ten-point Times in the national language or English language.|
|Agreement for more than one goods||A seller or credit facility provider is allowed to provide more than one credit sale agreement for purchases of more than one goods in the same transaction. However, a seller or credit facility provider may only impose one fee for processing of document for all credit sale agreements for purchases that are carried out in a transaction.||There must be a separate hire purchase agreement in respect of every item of goods purchased. Any goods which are essentially similar or complementary to each other and sold as a set shall be regarded as an item.|
|Requirement of Guarantor||No||Finance company may require a hirer to furnish a guarantor or such number of guarantors acceptable to the finance company to guarantee the performance of the hirer’s obligations under the hire purchase agreement.|
|Delivery of copy of Agreement to the Purchaser/Hirer||A copy of the credit sale agreement shall be served to the purchaser within twenty-one days from the date of signing the credit sale agreement.||Within twenty-one days after the making of a hire purchase agreement, the finance company shall serve or cause to be served on the hirer and the guarantors a copy of the agreement each.|
|Deposit||No deposit required to be paid by the purchaser.||A hirer must pay a deposit of at least 10% of the cash price of the goods.|
|Allowed. If a purchaser makes a payment for an early settlement before the expiration period of the credit sale agreement, the seller or credit facility provider shall grant a rebate to the purchaser. Grant of rebate may be exempted for promotional goods or where other goods are offered as a prize for the goods sold.||Allowed. The hirer must give notice in writing to the finance company of his intention to do so, on or before the day specified for that purpose in the notice, complete the purchase of the goods by paying or tendering to the finance company the net balance due under the agreement.
|Default in Installment Payments||In the event of default in payment by the purchaser within the period agreed in the credit sale agreement, the seller or the credit facility provider may-
(a) demand that the buyer voluntarily surrender the goods provided that a notice relating to the voluntary surrender of goods shall be served to the purchaser within the period of fifteen days before the date the goods are to be surrendered;
(b) allow the purchaser to enter into consultation with the seller or the credit facility provider for alternative dispute resolution; or
The parties are also bound by the implications of default as provided in the credit sale agreement.
|Where a hirer defaults in installment payments under a hire purchase agreement the finance company may enforce:
> the agreement against the hirer
> any right to recover the goods from the hirer
> any contract of guarantee relating to the agreement
|Right to Repossess||No||A. If payment of instalments amounts to not more than seventy-five percent of the total cash price of the goods comprised in the hire-purchase agreement, the finance company may exercise its right to repossess the goods provided that:
i. there had been two successive defaults of payment by the hirer;
ii. a notice, in writing, has been served on the hirer in the form set out in the Fourth Schedule of the Act; and
iii. the period fixed by the notice has expired, which shall not be less than twenty-one days after the service of the notice.
B. If the payment of instalments made amounts to more than seventy-five percent of the total cash price of the goods comprised in a hire-purchase agreement, the finance company may exercise its right to repossess the goods provided that:
i. there had been two successive defaults of payment by the hirer;
ii. an order of court is obtained;
iii. a notice, in writing, has been served on the hirer in the form set out in the Fourth Schedule of the Act; and
iv. the period fixed by the notice has expired, which shall not be less than twenty-one days after the service of the notice.
C. Where a hirer is deceased, the finance company shall not exercise any power of taking possession of goods comprised in a hire-purchase agreement arising out of any breach of the agreement relating to the payment of instalments unless there has been four successive defaults of payments.
|Right to Terminate||As provided in the credit sale agreement.||The hirer of any goods comprised in a hire purchase agreement may terminate the agreement by returning the goods to the finance company during ordinary business hours at the place at which the finance company ordinarily carries on business or to the place specified for that purpose in the agreement.|
Please note that the above comparisons are not meant to be exhaustive.
In comparison to hire purchase, the law governing credit sale in Malaysia are not comprehensive and the contractual relationship between the purchaser and the seller or credit facility provider would be based heavily on the terms and conditions of the credit sale agreement.
Taking into consideration that the purpose of the Consumer Protection (Credit Sale) Regulations 2012 is to protect the consumer in credit sale arrangement, stricter guidelines should be provided in these Regulations or by the relevant ministry. For instance, the Regulations provides that no changes may be made on the fixed interest rate subsequent to a credit sale agreement signed by both parties however the interest rate imposed by the credit facility provider is not regulated by any authority or agency. There have been complaints from many a consumer that the interest rate imposed by credit facility provider are too high. Thus, it is up to the consumers to do comparison between several seller or credit facility provider before entering into any credit sale agreement.