Whether Hire-Purchase Transaction is a Money Lending Transaction?

A:    A hire-purchase transaction is a contractual arrangement where the owner of goods agrees to let the hirer use the goods for a specific period, with the option to purchase the goods at the end of the hire term.

Typically, the hirer pays an initial deposit followed by monthly instalments. Throughout the hire period, ownership of the goods remains with the owner. Only when the hirer completes all payments does the ownership officially transfer to the hirer.

In simple terms, it’s like “rent now, buy later”, where you use the goods while paying over time, and you become the owner after completing all payments. This is commonly used for goods like cars, motorcycles, or household appliances.

This is well explained in the case of Low Ping Ming v MBF Finance Bhd [2000] 2 CLJ 307, where the Court emphasized that a hire-purchase agreement is a contract of hire with an option to purchase and that title to the goods remains with the owner until the hirer exercises the option to purchase.

A:    In Malaysia, hire-purchase transactions involving certain goods are governed by the Hire-Purchase Act 1967 (“HPA 1967”).

According to Section 1(2) and the First Schedule of HPA 1967, HPA 1967 applies to specific goods such as consumer goods and motor vehicles (e.g., motorcycles, motorcars, taxis, small goods vehicles, and buses).

Under Section 2 of HPA 1967, a hire-purchase transaction is defined as a transaction of hire with an option to purchase, regardless of whether the payments are called “rent” or “hire.”

It is important to note that not all goods are covered by the HPA 1967. Only those listed in the First Schedule are governed by HPA 1967.

For hire-purchase transactions involving goods outside the list, the transactions may not be governed by HPA 1967, but they still remain hire-purchase in nature.

A:    During the hire-purchase period, the goods are still owned by the finance company or the owner. The hirer is allowed to use the goods but does not legally own them. Once the hirer pays off the full amount (including deposit and monthly instalments), they can then choose to purchase the goods and ownership will transfer.

This was explained in the case of Low Ping Ming v MBF Finance Bhd [2000] 2 CLJ 307 where the Court held that the hirer only gets the option to buy the goods upon completing all agreed instalments. Until then, the legal title remains with the owner.

A:    No license is required to carry out a hire-purchase business, even under the HPA 1967. There is no section in the HPA 1967 that requires a license to carry out a hire-purchase business.

This applies even if the hire-purchase transaction involves goods that are not covered by the HPA 1967 (i.e., not in the First Schedule of the HPA 1967).

A:    The Moneylenders Act 1951 (“MLA 1951”) is a different law. It applies only to businesses that lend money and charge interest.

If a business wants to lend money, it must register and get a money lending license under Section 5 of the MLA 1951.

But this does not apply to hire-purchase transactions because:

• No cash is being lent out.
• The transaction involves goods, not money.
• Ownership of goods stays with the company until full payment.

A:    No. A hire-purchase transaction cannot be considered a money lending transaction.

In a hire-purchase transaction, the owner rents out goods to the hirer, with an option for the hirer to buy the goods at the end of the payment period. The key focus here is on the use of goods and the eventual purchase, not on lending money.

In contrast, a money lending transaction involves a moneylender giving money directly to a borrower, who then repays it with interest, usually in cash or through bank transfer. The main difference is that money lending involves cash, while hire-purchase involves goods, not cash.

Although the monthly instalments in a hire-purchase agreement may look like loan repayments, the transaction is legally structured differently. The main feature is hiring the goods, not borrowing money.

Although the monthly instalments in a hire-purchase might look like loan repayments, they are legally different. The hirer is paying for the use of goods, with an option to buy them, not borrowing money.

In simple terms, in money lending, the borrower receives cash and repays with interest, whilst in hire-purchase, the hirer receives goods and pays for their use with an option to purchase later.

The case of Hap Seng Credit Sdn Bhd v Mohamed bin A Ralim & Ors [2016] 10 MLJ 761 ruled that a hire-purchase transaction cannot be characterized as a loan or money lending transaction. The Moneylenders Act 1951 was held to be inapplicable to such agreements.

In view of these clear differences, hire-purchase businesses are not considered moneylenders, and therefore they are not governed by the Moneylenders Act 1951.

A:    Yes. Based on the law and court decisions, hire-purchase is clearly not the same as money lending. They are two different types of transactions:

Hire-purchase is about renting goods with an option to buy. Whilst money lending is about borrowing money and repaying it with interest.

Because of this difference: –

• No money lending license is needed for hire-purchase
• The Moneylenders Act 1951 does not apply
• Not following the Moneylenders Act has no effect on a valid hire-purchase transaction.