PART 5 – THE COLLECTION DEPARTMENT

When I was young, so much younger than today, I was impressed the first time I stepped into a Bank. Prior to that, the closest thing to the Bank that I have encountered was the Post Office Savings Bank with its cramped environment with various transactions such as stamps purchase, “Money Order”, “Postal Order” and savings account . When I was looking at the “Bank Tellers” at the counter with an “officer” or “manager” at the back who seemed so relaxed with nothing much to do except occasionally “signing” vouchers passed by the Bank Tellers, I said to myself “It would be great if I can work in the Bank, the job looks easy enough, not to mention “glamourous” and high self esteem”. It was fated that I got a job with a financial institution with the rank of an officer (necktie and all) but with a pay half of that of a clerk. Only then that I realised that behind the “facade” lies a “whole new world” of various departments one of which is the collection department and the job is far from “easy”

So, before we go into the collection procedures, it is also good to have a look at the people behind the collection department, the”bad guys” (the “unsung heroes depending on how you look at it) of banking apart from the “acceptable sorcery and evil” practice of Banking which creates money out of nothing and charging interest/USURY. These are the people whose job is to ensure that loans and interest are collected in order to keep the “Banking engine” running.

Don’t get me wrong though. I am not “demonizing” the collection gang. I have worked there before. I still have friends working in the Bank. If you know them, they are some of the nicest people around. If you happen to be their neighbour, you might only know them as working “in the bank” not knowing which department he or she is working in. They may even be the “model citizen” in their neighbourhood. The point is that they are just doing their job and it is the nature of the job that makes them look “bad” and in the negative light of things.If all debts are paid promptly, you don’t even need the collection department.

You may start to question why I am suddenly seem to be defending them. Well, as with the usurious Banking system, it is “by design” and it comes as a package of oppression due to Usury/RIBA. Human beings also come with different “packages” of traits and behaviours so there will be some collection personnel with sadistic tendencies and simply loves to make other people’s life miserable and some are known to make it  something personal. The borrowers too are of the same mix and sometimes it is the borrowers who make life miserable for the collection staff.    As I said before in the first article, I am just giving a level playing field though some of you (the Bankers of course) may cry foul on this “initiative” of mine.

In order to at least rationalise the “initiative”, have you seen some videos or read articles on a crime being committed in the hope of giving information and the “modus operandi” of the crime while at the same time giving some ideas for criminals or would be criminals to learn some new tricks? Well this is something similar but the similarity ends here. There are certain laws and guidelines to follow for the protection of both the creditors and the debtors. Both creditors and debtors have their fair share of abusers of the system but in the process, the innocents and gullible get victimized though it is not entirely their fault. This is the dilemma. To tell or not to tell but I feel “telling the story” would do a lot of good than not doing so. If you look at the graphic below, a well informed borrower will no longer be easily bullied by the debt collector:

 

 

In the entry level training for would be collection staff, one of the “facts” being taught are the traits and behaviours of borrowers and its relation to the potential of getting the loan payment. It is pretty straightforward as shown in the graphic below:

 

 

We shall briefly look into each category as detailed below:

1) ABLE AND WILLING TO PAY – A creditors’ dream customer but that’s what it is, a dream as not every borrower is in this category. These are the people who “live within their means” and will always ensure payment is made promptly at least until some financial calamity disrupts this behaviour.

2) ABLE BUT UNWILLING TO PAY – (Type 1)  The type who typically “live beyond their means” but with some knowledge of collection procedures and “loves” being on the edge with “stuntman” mentality. They know the limit of default before legal action is taken. Most of the time they are juggling their expenses for other things other than the monthly loan commitment. Not much of a problem. Needs constant follow ups and “mild” legal action (Lawyer letter of demand)  when needed.

3) ABLE BUT UNWILLING TO PAY – (Type 2) A bit similar to the type 1 above but not really familiar with legal action and procedures maybe due to the pressures of juggling expenses leading to absent mindedness or simply being absent minded. Easily pressured to make payment with “mild” or “a bit heavy” threat of legal action.

4) UNABLE BUT WILLING TO PAY – The type who lives “well beyond their means” but with all the “good intention” to pay “in good time”. They believe that their economic well being will “improve” with yearly salary increment and “someday” will be able to make ends meet.   They don’t realise that the debt and usury/RIBA  based system will cause the devaluation and loss of purchasing power of paper money. Therefore their dream of “financial freedom” will never be realised and they will keep on accumulating debt. For these type of borrowers, not really a problem with threats of legal action or initiating the legal action itself.

5) UNABLE AND UNWILLING TO PAY – (Type 1) The type that has “graduated” to living “way above their means” but somehow or rather still being given loan based on “good previous track record” (not badly tainted yet) or based on the technology of “whom you know” or through careless loan processing. Some of them are “well experienced” in legal action being taken against them. May need full fledge legal action and judgment execution to get payment.

6) UNABLE AND UNWILLING TO PAY – (Type 2) This type (not all, some are ok) normally use “non standard” (by “standard” we mean payslips, income tax form, etc) loan documents such as savings passbook, “investment” portfolios (ASB,ASN, MLM statements) and other “supporting” documents. Some are “seasonal’ income earners like padi farmers. Some may use the services of “document producers” (they are good, may well be more adanced now) to get the loan or in other words, fraudulent application. At the point of loan application, it is hard to guess who they really are based on the subdued, polite, angelic and innocent looks in their faces. You will only realise their true colours when the loan turns bad and when you try to take legal action, to repossess the car  for example, suddenly a few names will come up. The nicknames of your previously “angelic” borrower become known with names with”dragons” in it, “Taiko” (Big Brother), “Pak Long” (also loosely translated to “Big Brother”) and other names indicating their “positions” in society. A pain in the ass, sometimes not worth pursuing. Banks can always write new loans, creating “new money” in the process and charge interest to cover for this bad loans many times over. Please take note that the above list is just a sample taken from a myriad of combinations. Just a few main samples to give you the general idea. So, the collection clerks and officers have their work cut out for them or so it seems. Collection is not easy and very few people really enjoy it. Well, maybe some really enjoy arguing with people all the time to release stress. Everyday there will be a lot of “opportunities” to have arguments with customers, some minor, some may be full blown confrontations especially during car repossessions and legal actions being taken. Sometimes the “whole village” mob can turn up wreaking havoc at the Bank. Therefore debating and oratory skills are very important for the collection guys and gals. The skills of “passing the buck” is also vital, for example in the event of a car repossession. The officer in charge may pretend to be as shocked as the borrower when the car got repossessed since he/she “did not issue” the repossession order and quickly pointed the finger to “Head Office” (very rarely the borrower will call “Head Office” since he/she would not know who to call anyway), the “main suspect” who printed the order. If only the office printer can speak, he/she will be in hot soup. This requires a lot of practice and it goes with experience.

Typical example of “shocked as a monkey” expression is shown below:

 

Therefore, collection is an art, there is no rigid rule or script to follow, it is more of adapting one’s particular “behavioural style” to a set of standard procedures. Two collection personnel may achieve their objective by using two entirely different approaches. Sometimes you have to combine together to make it work and that requires great acting skills as demonstrated above. The “Good Guy Bad Guy Routine” ala “Good Cop Bad Cop Routine” and other “scenes” worthy of an Oscar are routinely used especially by those who has been working together for a long time and some “scenes” are simply spontaneous which makes it more realistic. Sometimes you wish those scenes were recorded and can be viewed again and again for entertainment or even for training purposes.

Collection also involves investigative work so you have to have a sharp mind and eyes for detail. You have to examine clues and leads you gather yourself or gathered by your colleagues which sometimes may not be up to your “high standards”. If you have the ability to change the pitch or tone of your voice, it is a great advantage in doing some “telephonic investigation” to gather information. The ability to master different languages and local dialects is also a definite advantage. In short, this job is not for a cry baby and not everybody are cut out to be a collection man or woman. Maybe we will recreate some of these “scenes” and “CSI stuffs” in future postings.

Apart from the above, collection staffs also need to be good listeners doubling up as “marriage counselors” or “motivational expert”. This is due to the fact that sometimes problematic borrowers will come to pour their sorrows and sad stories as to why they defaulted the monthly payment. Some will come alone and some with their spouse (It is hard to tell whether they are pulling a fast one. They also can play the “game”).  Sympathy aside, it is the monthly report that matters so with a “heavy heart” and with words like “there is nothing much that I can do but this decision comes from Head Office” the matter is handled professionally (swept aside). Sometimes I feel that loan application forms should also include questions regarding the overall health especially the mental health of the borrowers like the one found in Health Insurance forms. It will save you a whole lot of trouble in identifying problematic borrowers.

So there you go. Some of the things the collection guys and gals do day in and day out. Imagine having to do all this while taking care not to “tarnish” the reputation of their beloved employers (the Banks, of course) and then go back home being exemplary mothers and fathers and repeat the whole thing all over again. Sometimes in the minds of the collection people, how they wish they are doing the loan processing because working at the loans department is more “fun” because they can hang out with the car and machineries dealer (for Industrial Hire Purchase Loan and Term Loan), can have “happy hour” chats and sometimes in order to “please” the dealers in giving “more business” and create “good rapport” they will spend more time together which may include watching football games and some “karaoke” sessions. Customers also are a happy bunch, not to mention having “angelic” traits as described above.

However, the loan processing staffs have targets to meet in terms of loan disbursements every month and sometimes in their eagerness to reach their target and their “closeness” with the dealers may prove to be their downfall. Being “too close” and “buddy buddy” with the dealers and suppliers may “soften” their hearts or blur their judgment resulting in recommending a loan or putting a “good write up” to get the “borderline” or “extremely borderline”  loan approved which may turn “bad” and this has been a “bone of contention” between the collection staff and the loan processing staffs.Sometimes their roles will be switched to have a taste of “the other side” and to the satisfaction of the collection guys, the loan processing staff will have to collect from their own “portfolios” that have turned bad and had gone drown the drain to the cesspool.

On the other side of the fence, the “collection” gang will usually hang out with repossessors and occasionally with lawyers but it is the repossessors and lawyers who are “buying”. Repossessors will hope to get more repossession orders be it the “easy” ones but with the standard price tag as well as the high priced “wanted” vehicles so they will be the first to choose the “easy” and “juicy” ones.

As for the lawyers, either they want more cases or hoping to get paid for work done in the past which has been left unpaid, sometimes for years which is the “norm” in the Banking industry. Normally it is the boss who gets the treat from lawyers, and as for the officers or clerks, they may be invited to tag along if they are lucky.

Before we go into detailed breakdown of the collection process for each type of loan in the next section, it is good to have an overview of the similarities and differences between the legal actions taken to get you mentally prepared for things to come. For those with 1 to 3 months overdue, it is pretty straightforward. No need to move from the office, just pick up the phone and use their “communication skills”. The task is usually given to new clerks or officers under supervision to hone their skills in the techniques of persuasion, soft threats and utter bullshit.

For car and property loans, organized and scheduled actions are provided for by existing laws such as The Hire Purchase Act 1967 (latest amendment 2012) and the National Land Code as well as the normal legal recovery procedures of issuing Letter of Demand, filing summons and execution of judgments obtained from the court. These loans are categorized as “secured” loans where the “subject matter” of the loan being the car or property is normally used as collateral. The main problem or the added “burden” is the “unsecured” loan such as personal loan or credit card loan where the “collateral” is the “belief” that the borrower shall be able to meet the loan commitments based on the supporting documents of his/her  income submitted during loan application. Some may have additional “collateral” in the form of guarantors (which is “easy meat” for threatening borrowers), but with the increasing number of guarantors being made bankrupts for loans that they had little or any benefit at all, that is hard to come by nowadays.

For the “badly impaired” and “severely impaired” loans, it will take more than phone calls or letters to make them “tick”. Field visit is necessary as an investigative or additional tool to pressure the borrower to pay. The main aim of personal visits is to bring “realism” to the threats as opposed to phone calls which is designed for the “weak” and to bring about embarrassment to the borrower be it to co-workers or neighbours up to a point of the borrower would have no choice but to find some funds to “quieten” things up.

Now who is the most suitable for this job? Different Banks may have different policies with regards to the field visit personnel. Some may have special units for this purpose. Some might just require the same collection personnel to do everything from making phone calls, print letters, argue (er.. discuss) with customers and making personal visits. Some might “sub contract” the job to debt collection agencies with the promise of a certain percentage of the collection. Some Banks may “sell” the debt outright with a discounted amount usually those they have already written off and may be too “busy” (or the staff has become “weak”  or it has become too hot to go out nowadays due to global warming or too preoccupied with existing borrowers) to handle since the account has been declared “dead” or has turned into “zombies”. They may want to concentrate on the “living” loans with  higher chances of recovery.

So there you are. Some snippets about the collection team at the Bank. The same cannot be said about the Debt Collection agencies where they do not have the same kind of training the Bankers guys and gals do. They are not lawyer firms (although they have “lawyer sounding” companies like “Mafia Goons Partners & Co, “Max Pain & Associates” and other “professional sounding” names) and they do not have the legal power to do litigation. All they can do is intimidate and harass the borrower to pay and they are very persistent.

Whatever they collect is their livelihood and that is understandable but the way some of them go about their methods are highly questionable. A lot of complaints has been lodged on these agencies but the abuses continues. This is a multi BILLION Ringgit industry and it is highly unlikely that these agencies will fully toe the line because it is their most potent weapon for gullible borrowers. The older the loan the better because the interest on the bad loan would be astronomical sometimes running into hundreds of thousands especially for credit card where the actual balance are normally less than 10,000. The normal trick is to offer unbelievable “discounts” of up to 90% (of course if the interest is 100,000 and the actual loan is 2,000, a “discount” of 90,000 would still give a hefty profit  with just a few phone calls)

That is why the masses need to be informed of their rights and at the same time should be equally responsible for what they have borrowed unless the collection staffs of the Banks didn’t do their job properly and have absolved their legal rights to collect the loan within the allowable time limit and simply “pass the buck” (again) to the Debt Collection Agencies hoping to “get lucky” with some of the “old” borrowers which they somehow managed to trace with the advent of technology and “informers” (more on that later) and maybe, just maybe some gullible and ignorant ones not knowing the law of limitation would crumble under their pressure to pay under a few textbook “threats” of legal action and personal visits aimed at embarrassing the borrower to submit payment.

It is also “good” for the Banks to maintain their “clean and professional” image because if the Debt Collection Agency staffs “misbehaved” or went overboard in their collection methods, it is easy to switch to another one and say the previous one did not follow their guidelines to show “utmost professionalism” (some borrowers will testify that this is utter rubbish) in handling such cases  and has since been terminated. This statement will be accompanied by the usual face of “utter shock and disbelief” and the customer may feel “vindicated” before being harassed by another collection agency a few months later. “Lifes goes on” as they normally say. We shall discuss the Limitation Act in more detail with regards to loan recovery in the later part of this article as it needs a special space of its own.

END OF PART 5

NEXT – COLLECTION PROCEDURES: PERSONAL LOAN

PREVIOUS SECTIONS

Part 4 – TYPE OF LOAN DEFAULTS

PART 4 – TYPE OF LOAN DEFAULTS

Part 3 – TYPE OF LOANS IN THE HOUSEHOLD DEBT PORTFOLIO

PART 3 – TYPE OF LOANS IN THE HOUSEHOLD DEBT PORTFOLIO

Part 2 – QUALITY OF BORROWERS

PART 2 – QUALITY OF BORROWERS

Part 1 – BANKS AND DEBT COLECTION AGENCY

Banks and Debt Collection Agency – Current and Bad Debt Collection

 

PART 4 – TYPE OF LOAN DEFAULTS

As I said before, even in “normal” and “healthy” economic climate there are bound to be loan defaults as it is “by design”. “New money” chasing “old money” or ”other new money” to pay for the loan as the interest has “stolen” from the money supply.

Those who are financially “weaker” will be the ones generally who will default first and others will eventually follow suit. “The design” of USURY or RIBA based system will ensure that new debts will have to be created to pay for the old debt where there will never be enough “money” to go around. For revision of the usurious system, you can visit this link:

Facts of Digital and Paper Money and How Interest Steal from Abu Ammar

When there is an economic crisis, the loan default rates will multiply many times over. This is where the collection department of Banks and Collection Agencies would have to intensify their collection efforts for their own survival like what happened in the Asian Financial Crisis in 1997. During that time, collection was low, repossession of vehicles reached record highs, foreclosures of property were aplenty and Bankruptcy proceedings were rampant.

The returns from principal and interest were not enough to cover for operational expenses (lower returns of interest portion as loans get “older”) and new loans were frozen, so “new money” could not be created with “higher” portion of interest/USURY for the “rolling of expenses”. Finally the aid from the government in the form of “bailout” was needed to prevent the Banks from going under and restore the confidence of the people in the monetary system.

Maybe we will have a special session dedicated to the Asian Financial Crisis of 1997 to reminisce and learn from it in order to at least be “better prepared” for the incoming and expected bigger crisis. Many of you readers may still be too young to remember or even still wearing diapers when the said crisis of 1997 happened so it is good to know.

Ok, back to the types of loan defaults. The type of loan defaults can be divided into the following categories (these are my classification and might be slightly different from the classification from Banks and Central Banks)

1)      Potential Non Performing Loan – Loans that are overdue from 1 to 3 months. These are sometimes considered “normal” and “active” accounts but need to be monitored closely. Phone calls and simple reminder letters are normally used.

2)      Non Performing Loan or Doubtful Debts – Loans that have the potential to die off and become bad debts. Usually overdue from 4 to 12 months. More frequent follow ups sre required and normally already under litigation.

3)       Bad Debts – Loans which remain unpaid for more than 12 months.  Either in advanced stage of litigation and depending on the respective policy of Banks, these accounts may be written off and transferred to a department specializing in “cold” accounts. On the other hand, there are some accounts where legal actions are still undergoing would not be written off just yet, just isolated from the “active” accounts. The “income” from the interest from these accounts will be suspended in line with the guidelines from the Central Bank normally from the seventh month of default until the account becomes active again. For “write off” accounts, whatever amount paid is considered as profit after considering all recovery costs since it has been recorded as a “loss”.

 

The loan recovery process in the above three categories depends on the respective internal policies of the Banks. For the 1 to 3 months category, it is normally handled by the Banks staff because it is relatively “easy”, that is by “cordial” phone calls, sms (text messages) and reminder letters which nowadays generated by computers.

For car loans, it is governed by “The Hire Purchase Act 1967 (latest amendment 2012) where the Banks will have to follow the provisions of the said act in terms of recovery of the vehicle. Legal action may be taken after efforts to recover the car as provided by the act failed.

As for personal loans and credit card loans “affectionately” known as “unsecured loan” (may be “secured” by a guarantor) the usual process of recovery such as phone calls, reminders, lawyer’s letter of demand, court summons and judgment are used.

With regards to property loans, the usual recovery process as unsecured loans will be carried out.  However, when it comes to foreclosing the property, the Banks would have to abide by the provisions of the National Land Code.

Wow! That sounds complicated you might say. Don’t worry, I will try to give a detailed info graphics on each recovery process for each loan category in part 6 of this topic.

It is hoped that by knowing the procedures especially the TIME FRAME for each legal action, you will not be bullied with impunity by the Bank or the Debt Collection Agency staff with threats such as “TOMORROW we will make you a Bankrupt” or “TOMORROW we will auction your house” or “TOMORROW we will deduct your salary” and a few other “TOMORROWs”

Nevertheless, we also need to understand that the “collection guys” need to resort to such tactics to pile the pressure on the borrowers to get the debt paid . They are paid to do that and for the Debt Collection Agency staffs, they are actually “collecting” their salary but some have overstepped their boundaries in terms of proper collection guidelines and ethics.

However, please be reminded that if the proper legal procedures has been followed, the above threats are REAL, the bluff is in the timing and time frame or whether it has been executed at all. This is where the borrowers need to be aware of their rights and at the same time be responsible for the agreement that they have signed with the Banks in the first place.

As long as they have the legal right to collect the debt (unless prohibited by the Limitation Act due to “expiration” of the right to claim), they (the Banks and Collection Agents) are entitled to do so. I am not teaching you to run away from your debt but to give you the understanding of the collection procedures and the proper collection ethics and the channels in which you might get help. So keep on reading..

END OF PART 4

NEXT: PART 5 – THE COLLECTION DEPARTMENT

PART 5 – THE COLLECTION DEPARTMENT

PREVIOUS PARTS

Part 3 – TYPE OF LOANS IN THE HOUSEHOLD DEBT PORTFOLIO

PART 3 – TYPE OF LOANS IN THE HOUSEHOLD DEBT PORTFOLIO

Part 2 – QUALITY OF BORROWERS

PART 2 – QUALITY OF BORROWERS

Part 1 – BANKS AND DEBT COLECTION AGENCY

Banks and Debt Collection Agency – Current and Bad Debt Collection

 

 

PART 3 – TYPE OF LOANS IN THE HOUSEHOLD DEBT PORTFOLIO

The household loans are typically divided into the following categories:

1)      Housing Loan

2)      Motor Vehicle Loan

3)      Credit Card Loan

4)      Personal Loan

5)      Furniture and Household Items Loan

Housing loans and car loans are the major contributors to the household debt which is understandable given the relatively young population. The lure of “attractive” (low) interest rates managed to soften the impact of the high price of houses and cars which has escalated over the years. The mix of high interest rates and high prices of these two necessities would cripple demand and is not good for the economy. Malaysians has been “enjoying” low interest rates for several years already which has largely contributed to the huge debt bubble.

Credit card debts can be seen as a “side loan” or “supplementary loan” (in the beginning) to cater for petrol expenses and groceries and even dinner at “selected” restaurants when money (from wages) runs out especially after the inflation rate has gone up since January 2014. Of course there those who use credit card to satisfy their “compulsive shopping” habits while digging their financial freedom away. Personal loans are normally used for investment purposes in order to ease their financial burden or simply to cover for their already mounting debts scattered like birds’ droppings.

Personal loans are also used for glamorous engagement and wedding ceremonies successfully propagated by local celebrities which is the trend nowadays in order to “keep up with the Joneses”. This is a recipe for disaster especially if the newlyweds previously had student loans before (called PTPTN here).

After marriage, loans for furniture and fittings as well as electrical goods are easily available through companies like Courts Mammoth, Aeon Credit and Seng Heng with incredible offers like “you will only pay three months later” or “celebrate your Eid or whatever first and pay later” and of course with credit card type interest rates. Another recipe for financial calamity.

 

So there you are. The various types of debt in the household debt stockpile. Sorry for the long introduction because it has to be done to have a clear understanding of the types of debt involved and you will see the reason behind this as we go along in line with the topic “Debt Collection Agencies – The Collection of Current and Bad Debts”. So bear with me.

With all the monthly loan commitments, some are doing okay with their current income, some are  merely surviving which is not bad but many have to resort to juggle their expenses or juggling their time to earn extra income through side business or part time jobs. Some are committing financial suicide by juggling their credit cards or alternating their monthly payment (pay housing loan, miss the car loan or other loan and change the order of payment next month) so that they are always “on the edge” with regards to legal action.

If everything is stable which means if all prices of goods and services are “static” with no major changes, then well and good. But we are living in a debt based economy where inflation is a necessity. Dependency on the US Dollar as “THE” reserve currency goes to show how precarious is our position now as an economic calamity can happen at any time.

Domestically, the government burdened with debt would have no choice but to reduce subsidies for petrol and other essential items resulting in escalating prices for most food items, services and utilities across the board. This is where the pressure to keep on paying the monthly payments becomes unbearable and eventually loan defaults becomes inevitable. Those in the “I’m okay” and “I have no problem so far” are also affected. Those “I couldn’t afford it, but I want it anyway” group are already in the financial pit of no return.

END OF PART 3

NEXT: PART 4 – TYPE OF LOAN DEFAULTS

PART 4 – TYPE OF LOAN DEFAULTS

PREVIOUS SECTIONS

Part 2 – QUALITY OF BORROWERS

PART 2 – QUALITY OF BORROWERS

Part 1 – BANKS AND DEBT COLLECTION AGENCY

Banks and Debt Collection Agency – Current and Bad Debt Collection

ADVANCED SECTIONS

Part 5 – THE COLLECTION DEPARTMENT

PART 5 – THE COLLECTION DEPARTMENT

 

PART 2 – QUALITY OF BORROWERS

Another factor that we need to understand is that Banks give loan to a diverse group of people in terms of their “financial strength”, “credit worthiness” or simply the ability to service the loan. Of course Banks are always prudent in giving out loans and screening their borrowers but in some cases, “borderline” and “a bit above borderline” borrowers do exist where loans are given with the assumption that their economic well being might improve over the years with yearly increment of their salary. Factors like recession cycles and global financial instability are not really taken into greater context as the economy is always expected to “grow” indefinitely with inflation being the unavoidable side effect. On the other hand, you may also get loan based on the “know who”  technology inside the Bank even though your credit standing is not so good. The “bigger” the person in the hierarchy that you know, the “bigger” and the higher risk loan and lower interest rate you may get and this sometimes happens in the banking circles.

Therefore, in “normal” circumstances where everybody is “chasing” money to pay for their loans, there are bound to be people who will fall on the wayside and normally most of them are the “borderline” cases while there may also be those from the “prime” category due to business failure or some other factors.

Things will go haywire when there is an economic crisis like what happened during the Asian Financial Crisis due to currency manipulation in 1997 where “good” and “consistent” paymasters suddenly become “bad” borrowers. This situation may happen again with a greater impact given the current state of the global economy and the potential of a global scale war breaking out The after effects of the financial crisis of 2008 is still upon us where we were exposed to major frauds in the financial sectors particularly in the US and Europe. It is said that the US Dollar has lost 98% of its value and even if that is a correct estimate (probably it is a negative figure already), will only be worth RM0.06 sen and this is the value where oil is sold and this is the RESERVE currency of the majority of countries in the world. Now that is really living on the edge! “Owing” money created out of nothing and paying interest on it and having reserves which is basically worthless! Whatever the case may be, default will always occur due to the added value of interest or USURY and much more so in the current state of the economy where inflation has reared its ugly head and more and more people are finding hard to make ends meet and some are plunging deeper into debt just to survive and end up paying more interest in the form of  late charges for missing their scheduled payments. If we are to take the above RM755,000,000,000 figure, a default ratio (now with a more subtle name of “impaired” loan) of even 5% will give a figure of about RM38 billion. Ok, maybe some people will say that is too “high” so we will take the “accepted” industry standard of 2% as being “normal” and the figure should be around RM15,000,000,000 (billion)  which is also a lot of “money” (mostly in computers) and that is not including normal and compounded interest and late charges (also in the computer, not “released” yet)

END OF PART 2

NEXT: PART 3 – TYPE OF LOANS IN THE HOUSEHOLD DEBT PORTFOLIO

PART 3 – TYPE OF LOANS IN THE HOUSEHOLD DEBT PORTFOLIO

Banks and Debt Collection Agency – Current and Bad Debt Collection

THIS IS NOT AN ADVERTISEMENT ON GET RICH QUICK SCHEME. THIS IS INFORMATION AND TIPS ON HOW TO HANDLE COLLECTION AGENTS.

Are you currently behind in your loan payment and currently sitting on a pile of debt? Being harassed by Banks lately or by people hired by the Banks called Debt Collection agencies where some of them are masquerading as lawyers? Feeling hopeless, scared and embarrassed by the threats of losing your job, your car or your house? Please choose your answer below:

A: Yes, definitely

B: Not yet, but coming soon

C: Maybe, but I think I’m okay (for now)

D: No, I am super rich, I don’t have a problem

E: No, I or my father or my grandfather owns the Banks and too big to go to jail. Muah! Ha! Ha! Ha!

F: I work for the Bank or Collection Agency. Why are you doing this? You are destroying our “weapons”

G: If this is a get rich quick scheme, I’m sorry, I’m not interested.

If your answer is D and E, you can skip reading this article. If your answer is G, no this is not a get rich quick scheme. If your answer is F, don’t worry, I understand your problem. There are some borrowers who simply do not want to pay unless sufficiently “pressured” and there are some who are simply a pain in the ass. I may highlight the predicaments of the collection guys in another article.

I just want to give a level playing field in this area since there are guidelines and procedures to follow and sometimes it has been abused by the Banks’ personnel and Collection Agencies’ staffs taking advantage of some gullible borrowers even if they “deserved” it. Enough of that and if I need to repeat myself, it is just giving some basic understanding and a level playing field and by the way, I am no angel either.

If your answer is A, B or C, don’t fret, help is on the way. No, I am going to help you pay your debts, but I would like to share some information that may alleviate your fears and may help you handle the situation in a more subdued or calm manner.

MALAYSIA’S HOUSEHOLD DEBT REACHING ALARMING LEVELS

According to the Central Bank of Malaysia’s recent report, Malaysia’s household debt has reached 86% of GDP, the highest in Asia (congratulations, we are number 1!) which works out to roughly around RM755++ billion (RM755,000,000,000). This figure changes everyday but we have reach a very worrying figure. GDP by the way is subjective and is also financed by debt but we shall discuss that in another post.

Let’s concentrate on the household debt and by looking at the figure, it is alarming indeed and it may well be close to or already reached RM1 trillion (RM1,000,000,000,000) if we take the “illegal” loans given by loan sharks into consideration.

 

WHEN THERE’S DEBT, THERE WILL BE DEFAULT

In order to understand “default” in loans, we need to understand the loan creation process. When loans are given, money are created out of thin air digitally as book keeping entries in the Bank’s computer. Interest charged are not created as money but is designed to eat up or steal the numbers from the newly created loan so that in order to service the loan in full, the borrowers would have to take from the existing money supply which incidentally are created in the same manner (with interest) so there will not be enough money unless “new” digital money are created through loans. Confused? Perhaps the diagrams below can give you some understanding.

For more details, you can view the slideshare presentation of the “Facts of Paper and Digital Money” here:

Facts of Digital and Paper Money and How Interest Steal from Abu Ammar

 END OF PART 1.

NEXT: PART 2 – QUALITY OF BORROWERS

PART 2 – QUALITY OF BORROWERS

 

Blog Introduction

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 1^st, 2^nd, 3^rd 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