Perspectives of consumers, licensed moneylenders and regulator on consumer protection in the moneylending transaction system in the Klang Valley, Malaysia

In Malaysia, the moneylending industry is regulated by the Moneylenders Act 1951. Licensed moneylenders have supported the funding needs of consumers who do not qualify for personal loans from the banking sector. Nevertheless, consumer protection in moneylending transactions is hampered by consumers’ weak self-protection in exercising their rights and responsibilities coupled with the poor self-regulation of moneylenders in adhering to the rules and regulations. The research framework was developed using the Consumer Decision Process Model by Engel-Blackwell-Miniard and Public Interest Theory of Regulation by Hantke-domas. A phenomenological study was undertaken to understand the experience of consumer protection in the licensed moneylending industry from the perspective of three key stakeholders namely consumers, licensed moneylenders and regulator. Primary data were collected in the Klang Valley using face-to-face interviews involving fourteen borrowers, twelve licensed moneylenders, and four officers from the Ministry of Housing and Local Government responsible for overseeing moneylenders. The first research objective on consumer experience in the pre-moneylending contract information search and evaluation process unveiled that borrowers protection is unsatisfactory since they are reluctant to search for accurate information from the right sources related to moneylending. Meanwhile, licensed moneylenders pay less attention to consumer protection aspects. Compared to consumers, licensed moneylenders have more advantages because they choose customers carefully and rely on referrals from borrowers to promote their business. The regulator opined of having fulfilled its role in giving information to the consumers, monitoring the moneylenders and enforcing the law. However, these efforts are found to be insufficient for protecting consumers. The second research objective regarding the process of moneylending contract discovered that consumers’ poor decisions in the moneylending transaction were due to little awareness of their rights and duties. The licensed moneylenders had a better bargaining position as they were more aware of their rights and duties with regards to the moneylending contract. Thus, there exists an unequal bargaining power favouring licensed moneylenders and discriminating against the borrowers. Meanwhile, the regulator took a non-involvement role since the contract is between the borrower and the lender based on the freedom of contract principle. This action does little to support consumers’ protection. The third research objective on the moneylending complaints and complaint avenues found that consumers effort for self-protection is stalled as they were fearful and reluctant to complain against the licensed moneylenders. Borrowers' dissatisfactions were mainly on high-interest rates, not having a copy of the attested moneylending contract, not knowing who and where to complain. Furthermore, from the licensed moneylenders' findings, there were no direct complaints from their borrowers. It was discovered the regulator had limited powers to act on moneylending complaints due to inadequate evidence given by the borrowers which contributes to poor consumer protection. The fourth research objective in recommending consumer protection enhancement in the moneylending transaction system is by increasing consumers’ knowledge and the requirement of moneylending process. Moreover, the recommendation for licensed moneylenders is to embrace ethical business conduct, Moneylenders Act 1951 compliance and represented by a strong and unified association. The regulator is recommended to conduct more educational programs for consumers and licensed moneylenders with enhanced enforcement and redress mechanism. The implications from the research findings intensify the importance of the refinement of consumer self-protection, the enhancement of licensed moneylenders’ self-regulation and the advancement of consumer protection by the regulator. Besides theoretical and policy implications, this study provides important methodological implications. Suggestion for future consumer protection research is also elaborated.

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