WHEN a bank charges interest on a loan at a rate that is higher than that of a licensed moneylender, is it still a bank or a licensed Ah Long?

One local bank charges interest for its personal loan at a much higher rate than what can be legally charged by a licensed moneylender.

For its Islamic personal loan, the bank charges a rate of profit (akin to interest) of 24 per cent per annum.

On the other hand, a licensed moneylender may not charge more than 18 per cent per annum for an unsecured loan and 12 per cent for a secured loan. Anything higher would be against the Moneylenders Act 1951.

For a RM3,000 loan for five years, the repayment for the bank’s personal loan works out to be RM3.62 per day.

At the end of five years the borrower would have paid RM6,600.

However, if the RM3,000 loan was taken from a licensed moneylender at 18 per cent interest per annum, the repayment works out to be RM3.12 per day.

At the end of the five years, the borrower would have paid RM5,700, which is RM900 less than what is paid to a bank for a RM3,000 loan.

No bank should charge such high interest rates for its loans.

The rate of profit on the bank loan may be advertised as two per cent per month but because it is calculated on the principal and not reducing balance, the actual loan rate is 37 per cent per annum.

The Association of Banks in Malaysia and Bank Negara Malaysia should act to protect borrowers.

S.M. MOHAMED IDRIS, President Consumers Association of Penang

Source: NST – July 25, 2008