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7.1.1 General Provisions for Responsible Financing

C 8/2020 STA Effective from 25/12/2020
  1. 7.1.1.1This Article must be read in conjunction with Article 2: Disclosure and Transparency and Article 5: Business Conduct of these Standards and the Regulation regarding lending/financing and related services offered to Consumers.
  2. 7.1.1.2The provisions of this Article apply to any form of lending/financing/Credit Products granted by Licensed Financial Institutions to Consumers through any channel of distribution (e.g. online, mobile apps, branch walk-in, etc.).
  3. 7.1.1.3Providing lending/financing to Consumers must be subject to the credit risk policies of the Licensed Financial Institution. The Licensed Financial Institution must assess the ability of its Consumers to meet credit obligations and comply with Debt Burden Ratio (DBR) limits prescribed by the Central Bank.
  4. 7.1.1.4The required Consumer assessments in these Standards assists in determining if a Borrower/Financee could meet both current and future repayment/payment obligations, thereby reducing issues of over indebtedness, insolvency and vulnerability to unexpected adverse events and income shocks.
  5. 7.1.1.5Before granting any Credit Product, Licensed Financial Institutions must educate their Consumers by:
    1. a.Explaining in plain language the application and approval process;
    2. b.Explaining and providing a copy of the Licensed Financial Institutions’ offer to provide credit as well as the Key Facts Statement for the type of Credit Product being offered;
    3. c.Clearly informing Consumers of any risks associated with the use of lending/financing, including the variance of interest/profit rates/costs, consequences of violating the terms and conditions, late payment Fees, Early Settlement Fees, for Shari’ah financing any Commitment to Donate to charity, etc.;
    4. d.Explaining to Consumers and guarantors the implications of pledging any collateral, post-dated payment cheques or other guarantees that are required in obtaining the loan/financing; and
    5. e.Informing Consumers of the potential consequences of late payments or non-payment of their liabilities. The consequences to be explained may include, but should not be limited to:
      1. i.A negative Credit Information Agency rating and the possible limitations on the ability to borrow/obtain financing in the future;
      2. ii.Collection measures involving collateral, collection Fees and claim on guarantees; and
      3. iii.Legal actions through the courts.
  6. 7.1.1.6Prior to offering, recommending, arranging or providing a Credit Product to Consumers for the purpose of consolidating / refinancing existing loan/financing, Licensed Financial Institutions must provide Consumers, in Writing, a comparison of the total interest/profit charged over the tenor of the loans/financing payable if they continue with the existing facilities versus the total interest/profit payable based on the consolidated facility being offered. Any assumptions used in calculations must be reasonable, justifiable and clearly stated and communicated. The comparison must be retained and a copy is to be provided to the Consumer for review during the Permissible Cooling-off Period.
  7. 7.1.1.7Licensed Financial Institutions may agree to defer installment(s) as they deem appropriate, provided that such deferments do not result in the amount of future deductions from salary being in excess of the DBR percentage as prescribed by the Central Bank.
  8. 7.1.1.8Licensed Financial Institutions must only take from the Consumer the number of post-dated cheques covering the instalments and of value not exceeding 120% of value of the loan/financing or the debit balance. It is prohibited to take signed blank cheques. When one or more cheques are provided to the Licensed Financial Institution, the Licensed Financial Institution must provide the Consumer with a photocopy of all the properly completed cheques that were provided to the Licensed Financial Institution. The copies are to be stamped as accepted by the Licensed Financial Institution and given to the Consumer as proof of possession. When the lending/financing is paid off early, the remaining postdated cheques must be returned to the Consumer within 7 complete business days of the loan/financing being paid off.
  9. 7.1.1.9Consumers can request a written confirmation at any time from their Licensed Financial Institutions confirming if there are any liabilities owing or not. Licensed Financial Institutions must provide a Consumer with a “letter of no liability” in such cases in accordance with Article 5: Business Conduct of these Standards. If liabilities are owed, the Licensed Financial Institution must instead issue a “letter of liability” stating the details and amounts of the liability still owing. The relevant letter must be issued to the Consumer within 7 complete business days from the date of the Consumer’s request.