PUTRAJAYA, May 31 — A total of 11 financial institutions and hire purchase companies are ready to offer hire purchase financing under the amended provisions of the Hire Purchase (Amendment) Act 2026, which comes into force on June 1, according to the Ministry of Domestic Trade and Cost of Living (KPDN).

Its minister, Datuk Armizan Mohd Ali, said the second phase of implementation is targeted to begin in September 2026, and consumers who wish to benefit from the new provisions are advised to make the necessary checks before finalising their hire purchase agreements.

“At the same time, financial institutions and hire purchase companies that are still undergoing preparations, including system integration and modifications, have been given a transition period until March 31, 2027.

“They are encouraged to adopt the new legal framework as soon as possible and notify the ministry once the transition process has been completed,” he said in a statement today.

Armizan said the ministry will officially enforce the Hire Purchase (Amendment) Act 2026 from June 1 as part of efforts to strengthen consumer protection and ensure a fairer, more transparent and competitive hire purchase financing system.

In line with the amendments, the Hire Purchase (Term Charges) Regulations 2026 [P.U.(A) 171/2026] will also take effect on the same date.

He said the enforcement follows amendments to the Hire Purchase Act 1967, which were passed by Parliament in 2025 to strengthen the legal framework governing the consumer credit ecosystem.

According to Armizan, among the longstanding complaints from consumers were issues related to vehicle hire purchase transactions, particularly hidden interest charges and high outstanding loan balances despite early settlement.

“This situation has resulted in borrowers who wish to settle their loans early having to bear outstanding balances that do not accurately reflect the actual cost of the financing,” he said.

Among the key amendments is the abolition of the flat interest rate system and the Rule of 78 method. Under the previous method, a substantial portion of instalment payments in the early stages of a loan was allocated to interest, with only a small amount going towards reducing the principal.

The amended law introduces the Reducing Balance Method and Effective Interest Rate for fixed-rate hire purchase financing.

“Under this method, interest is calculated based on the current outstanding loan balance, making early settlement more transparent and fair for consumers,” he said.

The amendments also allow for the use of digital and electronic signatures, as well as electronic document submissions, in line with the government’s digitalisation agenda to improve the efficiency and effectiveness of the hire purchase process.

In addition, KPDN said the amendments introduce a requirement for two due diligence checks to verify borrowers’ identities, aimed at reducing the risk of fraud.

Armizan said the legal reforms reflect the government’s commitment to creating a more transparent, accountable and integrity-driven credit ecosystem, while enhancing industry governance and safeguarding consumers’ rights and interests nationwide. — Bernama