BNM's FTFC Policy Revision To Ensure Fairer Deals For Financial Consumers 

KUALA LUMPUR, Nov 11 (Bernama) -- The revised Fair Treatment of Financial Consumers (FTFC) policy document will enable financial service providers (FSP) to take appropriate action to understand vulnerable consumers better and provide the necessary assistance, said Bank Negara Malaysia (BNM) spokesperson.

BNM said FSPs are required to identify consumers in vulnerable circumstances, embed consumer needs in product development, develop staff’s skills and capabilities, as well as enhance customer service and communication. 

Additionally, the Policy Document on Personal Financing has also introduced new requirements to promote sounder practices in personal financing (FP) offerings and empower consumers to make informed financial decisions.

Among other things, effective Jan 1, 2027, the revised policy prohibits flat-rate loans, whereby the interest rate is charged on the full principal over the tenure, so borrowers pay the same amount of interest throughout the loan period despite the principal amount reducing through monthly payments.

It will also prohibit the Rule of 78 method, where the interest is calculated based on a pre-determined formula with a larger portion of interest allocated to earlier payments, which leads to a higher principal amount outstanding upon early settlement.

FSPs are also advised to disclose the effective interest or profit rate to consumers.

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"Flat rate loans and the Rule of 78 is unfair to consumers," the BNM representative said during Media Workshop by BNM on Fostering Fairer Conduct among FSP. 

BNM said the transition to reduce balance method can lead to fairer outcomes for consumers, in line with the Hire-Purchase Act 1967 (HPA 1967) amendments, tabled in the Parliament in October 2025.

The Act will come into effect immediately upon being gazetted, which is expected to take place in the first half of 2026.

"Banks will be given a grace period of 18 months to cater to system enhancements in adopting reducing balance method for fixed rate hire purchase.

“This will provide hire purchase providers adequate time to conduct system and infrastructure enhancements. Banks that have completed system enhancements can offer reduced balance hire purchase at any time, expected within six to 12 months," said BNM. 

HPA 1967 is governed by the Ministry of Domestic Trade and Cost of Living, with the ministry and the central bank collaborating to amend provisions that are outdated or unfair to financial consumers. 

At the same time, effective Jan 1, 2027, the policy also requires consumers applying for PF with amounts exceeding RM100,000 to complete a financial education module with the Credit Counselling and Debt Management Agency (AKPK) or FSP. 

This will help consumers assess their financing needs and understand the potential bankruptcy risks of non-repayment.

“The 15-minute financial education module will allow them to review their current debt obligations, assess affordability, and understand additional costs they may not initially be aware of," the spokesperson said.

-- BERNAMA