Welcome to the blog “Debt Tales: The Bank and You”. This blog shares stories about debt. Between “Taking Debt to Live” and “Living for Debt”. There are sad, funny, sometimes downright scary and many more stories about debt. The endless cycles and shackles of debt. Stories of the tactics employed by Banks to collect debt. Tactics used by borrowers to escape paying off debt (not really successful as you can never delete the computer data) as well as the tactics used to cheat the Banks into giving out loans will also be discussed as guidance and lesson for everybody concerned to be more careful in the future. By the word “Bank”, it shall cover all lending or financial institutions, cooperatives and credit companies since most of their fundings can be traced back to the banks. This Blog shall focus on loans from the points of views of the Banks and their Borrowers. Specifically, the sharing of experience and information from this blog attempts to “bridge the gap” between the Banks and its borrowers in the context of giving the borrowers more understanding on the various types of loans given by Banks and the pitfalls attached to it. It will also give a bit of “strength” to the borrowers in facing the “mighty” Banks when having problems in loan repayment so that the borrowers would not be easily intimidated by some Banks’ collection personnel which may affect their jobs and their family’s well being making it worse than before.
It is hoped that it would be beneficial to the following individuals:
1) Those already indebted and paying normally, but requires understanding nevertheless
2) Those already indebted and cannot pay regularly and do not know what to do in the event of default
3) Those already indebted, have no intention of paying the instalments and thinking of disappearing or have already “disappeared”
4) “Debt Virgins”, those who are contemplating taking out loans for engagement, marriage, to buy a car, house, furniture and the “honour” of having credit cards (inclusive of those already stuck with PTPTN student loan. Still considered a “virgin” since their record is out of CCRIS)
5) Collections officers/clerks especially new ones on things to watch out for. Some mistakes can be costly and will enable the borrowers to “walk free”
Why now? Because we are on the verge of an economic crisis. In the era of information technology, you may have realized or have read somewhere or are actually following the recent economic events and surely are feeling the pinch of the current economic slowdown. This situation is akin to the events leading to the birth of a child. (Sorry moms, the analogy seems appropriate, the “pain” of childbirth is definitely not the same as the “pain” of economic crisis, but painful nevertheless) The mother will feel a few contractions before the contractions will become more frequent until a child is born. In the context of the current economic situation, the economic contractions has been going on for some time now and it seems to be increasing in intensity which will lead to a full blown “birth” of an economic meltdown and we should be prepared for that.
As with everything in life, there will always be two sides of a situation like the two faces of the same coin. With Banks, you will have the loan processing department and the loan collection department. The loan processing department is normally a “happy” place to be for obvious reasons where this is the place the Bank’s loan personnel and the customer ”get to know each other” better. The same cannot be said with regards to the collection department where the environment is.. er.. less than cheerful even for the collection personnel! This department is the place to “exchange ideas” between the collection personnel and the customer where more often than not, words spoken here are less than cordial and sometimes you can see “reenactment” of scenes from WWE wrestling promotional videos.
If you have debts with the Banks, Cooperatives, Courts Mammoth and its siblings, you should know the intricacies of the legal action that can be instituted against you in the event of default in payment EVEN THOUGH you have no problem paying them now because you may feel comfortable now and “so far so good”. Maybe some of you have already felt the “heat” and currently having problems with the Banks even though you used to be a “good” borrower. A lot of “good” borrowers became “bad” borrowers in the eyes of the Banks when there is an economic crisis or due to the internal household economic pressure. The best example is in 1997 where thousands of borrowers couldn’t make the payments. Thousands of vehicles were repossessed, thousands of houses foreclosed, thousands more being made bankrupts and thousands of companies went under. Even a few Banks went dead or became zombies until they were “magically” resurrected a few months later. Therefore it is imperative that we equip ourselves with a bit of knowledge so that we would not easily panic and be able to think with a clear mind when facing the economic crisis.
Apart from discussing the loan collection methodology, we shall look into the origins of Banks and how Banks “magically” operate. Where do they get the money to give out loans, how they make tons of money and how do they “create” money “out of nothing”? If you have the opportunity to watch the TV series “Breaking the Magician’s Code: Magic’s Biggest Secrets Finally Revealed”, it should be more or less the same, minus the scantily clad ladies of course!. A lot of people thought that Banks are strong and invincible but if you know their secrets, they are just frail entities who are easily destroyed within hours or days. Just like a jellfish, “majestic” in the water but once out of it, it will just collapse and shrink. Using the analogy of the jellyfish and Banks, you should be able to figure out who is the “water” that supported the jellyfish all this while.
You cannot believe it? Just look back during the 1997 Asian financial crisis and the 2008 infamous “Subprime” mortgage fiasco in the US and the European Banks and sovereign debt crisis. Banks fell apart dropping dead like flies being sprayed with insecticide. Those not immediately dead became the “undead”, zombies roaming around looking for more victims but to no avail. Eventually their governments bailed them out with public funds with another “magic show”. The US government is the “luckiest” country since the world’s population is “supporting” the US Dollar whether they like it or not, whether they are aware of it or not. Some of these bailouts were even done in secret. Even worse, even during “normal times” if every account holder withdraws their savings in the Bank at THE SAME TIME (called a Bank Run), the Bank will be dead as well. With this information, you will never look at the Banks the same way again and you may feel sick or cheated or you may wish you have a Banking License! A “professional” and legal loan shark with “excellent” reputation. More on that later.
Having said that, I need to add that whether we like it or not, whether we are aware or otherwise, getting loans from Banks means immersing yourself in usurious transactions or RIBA for Muslims regardless whether the loan is “conventional” or “Islamic” in nature since it is the “interest” or “usury”, hidden or otherwise ingrained in the financial system which is the actual “devil” that is causing the economic mess in the first place. In simple terms, FINANCIAL SLAVERY. For example, if you are indebted to someone, normally you have to somewhat follow the wishes of the one giving the loan and will feel embarrassed every time you see him or her if the debt remains unpaid (if you have a conscience, that is). What more if it is a Bank loan with stacks of loan agreements with the potential of getting your car repossessed, your house auctioned off and the potential of being a bankrupt with little chance of ever getting another loan since your name and details are already in the system i.e. CCRIS,CTOS and FIS. It is hoped that the information and stories shared in this blog will be beneficial to at least alleviate the “suffering” or if you like the “joy” of having debts and its effects on our cost of living. So I repeat, the focus is on DEBT and its components shared, dissected and explained as simple as possible (I hope so).
Ok. Since the purpose of this blog is clear, we can start now. Sometimes we are afraid of something that we do not know. A famous Malay saying states that “Tak Kenal Maka Tak Cinta” which means you will never love someone or something until you know him/her which relates to romantic relationships. The same cannot be said about DEBT or LOANS. Maybe the statement “Love at First Sight” is more appropriate since the temptation to take loans is compounded by the “love” of something like a car and the “special offers” that accompanies the loan. For example, during the recent festive season of Eidul Fitri, some car dealers even offered cash of RM2,500 and 100% financing for a car which also covers the first year of insurance. The offer is extended to “debt virgins” i.e fresh graduates which is actually a debt trap.
Coincidently, this arrangement is clearly in violation of the Hire Purchase Act 1967 (Latest amendment 2011) which is supposed to “protect” the consumers unless a personal loan is given to buy the car outright or a much simpler “magic show” of putting the minimum of 10% deposit as being “paid” in the agreement. Everything is “adjustable” up to the point of providing fake driving license (from the dealer, not the Bank) being one of the requirements of obtaining the loan.
But since the arrangement seems to “benefit” the consumers since they will get cash and a car for “free” just by signing some “documents”, and the “economy” will be further boosted by car sales and thus keeping the financial sector “healthy”, the arrangement seemed to flow through “unnoticed”. The reality of living beyond their means shall creep in usually during the expiry of insurance and road tax, where they have to fork out a substantial sum for insurance premium for the high outstanding sum (100% loan) they have taken “for free” a year earlier. This is where the songs “I Hate Myself for Loving You” (Joan Jett) or “Please Release Me” (Engelbert Humperdinck) or “Cuts Both Ways” (Gloria Estefan) might become their daily anthems. Had they given more thought, they may think umpteenth times before getting into this mess. Given the fact that the loan period is 7 to 9 years, their cars will be rusty junks by then. Attempts to sell the car during the 1st, 2nd, 3rd or whatever year will be unsuccessful since the loan balance WILL ALWAYS be higher than the market value of the car. This scenario is one of the many examples of poor judgment or some people say poor financial planning. Some already know the risks involved but they don’t seem to care. Life is short, they say, so enjoy to the fullest!
Bank loan agreements are generally in favour of the Banks. Borrowers rarely give a hoot about the risks they are getting into and usually never bother to read the terms and conditions in the agreement. Only after being sued by the Banks for non payment will they actually read the agreement or ask their lawyers to find any “loopholes”. Therefore, it is very important for each borrower to know the type of loan taken, the interest structure, late and penalty charges, the rights of borrowers and Banks up to the legal action and procedures that can be taken against them. If a borrower is knowledgeable about all this, he/she will be able to think clearly in time of crisis without having to be a magician and perform the “disappearing act”. This will make it easier for the Bank to handle the case and settle the matter amicably and he/she will not be easily “spooked” or intimidated by some sadistic “collection officers” who loves to “poke” the borrowers to release some tension. You cannot really blame these “collection personnel”, they are just doing their job. Some are in charge of thousands of accounts and by month end, their bosses are breathing down their necks and their bosses, in turn also have “Head Office” or the “BOD” breathing down their necks for positive results! There are also some new and inexperienced collection personnel who may think that collection is merely a “game” without considering the sensitivities of borrowers and sometimes their actions are unacceptable. More on that as we go along.
This blog shall have the following topics for discussion:
1) Household Debt, NPL and Bankruptcy
2) The Debt Life Cycle
3) Types of Loans and Borrowers
4) Where does the “money” comes from? i.e. Banks, Cooperatives, Credit Companies and others (AEON, Courts Mammoth);
5) What is “Interest” or “Management Fees”;
6) What is “Time Value of Money”;
7) The “threats” of a Debt Collector;
8) The rights of Hirer and Banks in a Hire Purchase Agreement;
9) Hire Purchase Loan with “Flat Rate” interest. What is Rule 78?
10) “Advantages” of being a Guarantor
11) Debt collection procedures and legal action for each type of loan;
12) Which one to settle first? (Credit Card, Hire Purchase, Personal Loan, Housing Loan)
13) Collection Agency
14) AKPK and Insolvency Department
15) Other matters… as and when necessary (May disrupt the above sequence)
Please be reminded that I am not an “expert” on the above matter. Just an old man having a bit of experience in debt collection some time ago and learning some bits and pieces here and there through the UOL. Not United Orix Leasing but University of Life where life’s experience (the real deal) is far more valuable than the theories you learn in college or universities. During my working days, technology is not as advanced as today. We used the IBM PC clone with the 5.25 inch “Floppy Disk” like this:
We used “LOTUS 123” for our daily reports. The PC had no hard disk, so we have to save into the “big floppy”. Clicking the “save” button is the cue to go for “teh tarik” session since it will take ages to complete. Sometimes when we got back from our break, the “save” had not finished yet! Those were the days.
Customer records are in printed ledgers and kept in steel binders. When payments were made, ledgers were manually “crossed” and late charges were calculated and noted manually as well. Any remarks on the customer were also noted and written on the ledger. Nowadays everything is recorded, calculated and kept in the computer and I wonder whether the new generation of bankers actually know how to calculate the late charges and interest rates and full settlements. Customers should try and ask them to show how they arrive at the calculation. Not that we do not have decent computers in those days. We did have mainframes to keep records with “giant” magnetic tapes occupying big rooms.
The most “modern” and “trendy” hand phone at that time (more like briefcase mobile phone) was this:
So you can guess how long ago that was. However, even though times have changed , collection methods remain the same over the years. The “financial cycle” of ups and down remained relatively the same but becoming worse after every cycle. It goes like this:
The focus of the above economic cycle was the effects on the Banks and Consumers since almost everybody has some form of savings or loans in the Banks. If you want to know the full effects or contributors to the economic crisis like GDP, interest rates, external factors, foreign funds and investors, you may look it up yourself in the Internet. What is important here is what happened in 1997 to Banks and its customers. The 1997 Asian Financial Crisis was due to currency manipulation and during that time the household debt was not as high as what it is now which is more than 83% (may be higher now) of GDP at RM800,000,000,000 (RM800 billion). With the US Dollar coming to its demise and China planning to peg its Yuan to Gold and with the potential of simulated war, imagine the magnitude of the impending economic crisis. Do you think the RM800 billion debt will be paid? Of course not and that is why we should be ready. Ready to save whatever remains of your money and prepare to be sued if you are unable to pay your debts at that time. Whatever the case may be, the price of goods will always rise in ALL conditions while the “number” of your salary remains relatively the same. Even if there is an increment, it is never enough to offset the inflationary pressures. Wonder why?
Legal procedures has not changed much either. Instead, the “population” of lawyers has increased tremendously. Even though with the advancement of technology, “personal touch” is still the way to go in debt collection and communication is of utmost importance for both parties. “Disappearing” and not knowing what legal action is being brought upon you is not a good idea. It may haunt you later in life as records NEVER get deleted. So it is better to own up now and “cut your losses” since nobody put a gun in your head to take the loan in the first place. Many will claim ignorance but ignorance is certainly no bliss in this territory. You need to know otherwise you may regret it the rest of your life.
Whew! That is quite long for an introduction. I welcome feedbacks and shared experiences from Ex-Bankers, current Bankers and those in debts whether in the category of “current”, “doubtful” or “bad” and “Missing in Action”. Thank you for reading this far into the introduction of this blog.
Next: Household Debts, NPL (Non Performing Loan) and Bankruptcy