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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:

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”.

 

collectionraceENGLISH

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

https://debttalesthebankandyou.wordpress.com/2014/07/12/part-5-the-collection-department/

PREVIOUS PARTS

Part 3 – TYPE OF LOANS IN THE HOUSEHOLD DEBT PORTFOLIO

https://debttalesthebankandyou.wordpress.com/2014/06/29/part-3-type-of-loans-in-the-household-debt-portfolio/
Part 2 – QUALITY OF BORROWERS

https://debttalesthebankandyou.wordpress.com/2014/06/27/part-2-quality-of-borrowers/
Part 1 – BANKS AND DEBT COLECTION AGENCY

https://debttalesthebankandyou.wordpress.com/2014/06/26/banks-and-debt-collection-agency-current-and-bad-debt-collection/

 

 

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Filed under Banking and Finance, Cerita Hutang, Collection Department, Debt Collection Agency, Debt Tales, Lawyerment, Litigation, Usury and Riba

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.

debttrainenglish

 

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.

aquariumENGLISH

END OF PART 3

NEXT: PART 4 – TYPE OF LOAN DEFAULTS

https://debttalesthebankandyou.wordpress.com/2014/06/29/part-4-type-of-loan-defaults/

PREVIOUS SECTIONS

Part 2 – QUALITY OF BORROWERS

https://debttalesthebankandyou.wordpress.com/2014/06/27/part-2-quality-of-borrowers/

Part 1 – BANKS AND DEBT COLLECTION AGENCY

https://debttalesthebankandyou.wordpress.com/2014/06/26/banks-and-debt-collection-agency-current-and-bad-debt-collection/

ADVANCED SECTIONS

Part 5 – THE COLLECTION DEPARTMENT

https://debttalesthebankandyou.wordpress.com/2014/07/12/part-5-the-collection-department/

 

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Filed under Banking and Finance, Cerita Hutang, Collection Department, Debt Collection Agency, Debt Tales, Lawyerment, Litigation, Usury and Riba

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.

bankloanENGLISH

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.

bankcodeenglish400

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.

offerkereta400

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:

pcxt_eng300

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.

binders

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:

ericsson%20old%20mobile

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:

econ_cycleenglish300

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

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Filed under Banking and Finance, Collection Department, Debt Collection Agency, Debt Tales, Lawyerment, Litigation, Uncategorized, Usury and Riba