Business

Saturday May 2, 2009

Higher car financing rates unfair

Letter to the Editor


I refer to P. Gunasegaram’s comment that if banks can quote the effective interest rates for hire purchase the way they do for other loans, then the public will know the true cost of their borrowings instead of depending on a relatively unreliable figure.

This is indeed true. As a financial management trainer, my advice is sought on comparison of loans. I can safely say that 9 out of every 10 non-financially trained persons are not able to differentiate the various quoted interest rates. Since the average person is less likely able to compute the actual effective interest rates for their loan, it’s hard to comprehend why Bank Negara has not made it compulsory for banks to state the effective annual interest rates for all loans.

Hire purchase rates are not the only one calculated flat on the original principal sum. Many financial institutions also actively push personal loans to customers.

I find the use of such rates at best confusing, and at worst misleading. For example, to the uninitiated, an offer of a loan at a “flat rate” of say, 9.88% p.a. may give a positive connotation that interest rate is capped at below 10%, which appears to be relatively cheap. However, a flat rate of 9.88% rate over the tenure of one year will actually work out to 17.76%!!

Similarly, many credit cards companies market their balance transfers or conversions of outstanding balances to loans using monthly flat rates, again usually without highlighting the actual effective annual rate. How many laymen opting for the conversion/transfer actually realises that a touted “incredibly low flat rate” of say 0.8% per month actually calculated upfront on the original sum over a year would work out to an effective annual interest rate of 17.3%, which is of little difference with the maximum 17.5% p.a. normal credit card charge rate but is far higher than the 13.5% p.a. rate than he/she can potentially enjoy if prompt payment is made?

I urge the central bank to impose a compulsory condition that all advertisements offering loans including flyers must prominently state the effective annual interest rate.

Erwin Tan, Taman Maluri,KL

Speedier services

The Association of Banks in Malaysia would like to refer to the Letter to the Editor that appeared in the StarBizWeek on April 25 2009 entitled “Fruitless Request”.

1. Crediting of funds into accounts

The banking industry has been working towards enhancing its cheque clearing systems to cater for the implementation of the Cheque Truncation System.

Currently, the system has been implemented in the states of Selangor, Wilayah Persekutuan, Melaka, Negeri Sembilan, Pahang and Perak. It is envisaged that the system will be extended to Sabah, Sarawak, Penang, Johor, Kelantan and Terengganu in the early part of the second half of 2009. Once the Cheque Truncation system is fully implemented, members of the public who bank in their cheques on Day 1 will be able to obtain their funds on Day 2.

2. Fees and charges

Banks are required to adhere to a set of standards as guiding principles in setting any fees and charges on services offered to individual accounts as well as accounts of small and medium enterprises. Customers are encouraged to make comparative evaluation of the services offered by banks.

Comparative tables are available by accessing
www.bankinginfo.com.my.

Alternatively, bank’s customers may avail themselves of the Basic Banking Services (BBS) which are offered by all banks at no or minimal costs. For example, under the Basic Savings Account, there is no maintenance charge.

Customers can enjoy up to 8 free ATM cash withdrawal transactions from their bank’s ATMs and limitless balance enquiries and fund transfers within the same banking institution or pay a fee of RM8 if a customer were to opt for unlimited ATM withdrawals and OTC transactions.

Please be informed that for non-BBS accounts, some banks may impose a fee of RM8 if a customer were to opt for unlimited ATM withdrawals.

Our member banks are fully appreciative of their role in nation building through the provision of quality banking services and are committed to continual improvement.

There is no deliberate attempt by any one bank to drive its business by taking undue advantage of customers. We welcome the writer of the Letter to Editor to contact us directly at 1300-88-9980 so that we may be able to establish a line for a frank exchange of views and opinions.

Yours sincerely,

The Association of Banks in Malaysia

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