By Olivia Miwil
KOTA KINABALU: The amended Hire Purchase Act will come into force on June 1, introducing reforms aimed at strengthening consumer protection and modernising the hire purchase framework in Malaysia.
Domestic Trade and Cost of Living Minister Datuk Armizan Mohd Ali said the amendments form part of the government's broader agenda to enhance consumer rights and improve the country's consumer credit ecosystem.
"One of the focuses of the consumer movement agenda in 2026 is legal reform related to consumer rights and interests, which covers implementation, amendments and the development of relevant legal frameworks," he told reporters after the National Consumer Day 2026 celebration.
The amendments, he said, will abolish the use of the flat interest rate and the Rule of 78 method, which previously allocated a larger portion of early loan instalments towards interest payments rather than principal repayment.
Under that method, most of the instalment payments during the early stage of a loan period are used to pay interest, while only a small portion is allocated towards principal repayment.
"This situation causes borrowers who wish to settle their loans early to bear a high outstanding balance that does not reflect the actual cost of the loan."
Under the amendments, the reducing balance method and the effective interest rate will be introduced for fixed-rate hire purchase loans.
Through the method, interest is calculated based on the current outstanding loan balance, making early settlement of loans more transparent and fair to consumers.
The amendments also support digital transformation by allowing the use of technology in hire purchase agreements, including the use of digital signatures and electronic submission of documents.
"In addition, the amendment introduces the requirement to conduct due diligence in verifying the identity of borrowers as a measure to reduce fraud risks.
"However, a transition period may be given to hire purchase providers that require time to adjust their systems, documentation and processes in line with the new requirements.
"Providers that are already prepared may begin offering hire purchase agreements according to the new amendments once the enforcement date begins on June 1, 2026," said Armizan.
He said banking institutions will offer a goodwill discount to customers who choose early settlement under the old financing structure.
"This discount will be given to customers under the old method — the flat interest rate and Rule of 78 — who choose to make early settlement, to ensure their outstanding balance is comparable to customers entering new agreements based on the Effective Interest Rate and Reducing Balance Method under the Hire Purchase (Amendment) Act 2026."
Armizan said the legal reform reflects the government's commitment to creating a more transparent credit ecosystem and protecting consumers.
The event was officiated by Prime Minister Datuk Seri Anwar Ibrahim.
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