The Malaysian Bar commends the direction given by the Central Bank of Malaysia — Bank Negara Malaysia (“BNM”) — as the regulatory authority to all banks and financial institutions, in abolishing the loan documentation fee for housing loans and home financing with effect from 1 February 2023, following the issuance of a notice of cessation.1
The Bar Council had, on multiple occasions in the past, engaged with the relevant stakeholders, including BNM, The Association of Banks in Malaysia (“ABM”), Association of Islamic Banking and Financial Institutions Malaysia (“AIBIM”), and the Ministry of Finance (“MOF”). Most recently, we had raised this issue with the Prime Minister who is also the Minister of Finance at a meeting on 13 January 2023. The Malaysian Bar is heartened that our efforts did not go to waste. This directive by BNM marks a huge and right step forward.
The Malaysian Bar has long championed the abolition of the imposition of such fees, as they are illegal — contravening section 37(2) of the Legal Profession Act 1976. Section 37(2) states that any unauthorised person who either directly or indirectly draws or prepares documents relating to any immovable property, for or in expectation of any fee or gain, shall be guilty of an offence under that subsection. This is precisely what the banks were doing when fees for loan documents were imposed on borrowers.
The banks have essentially transferred the cost of doing business to the consumers, resulting in financial hardship for borrowers and/or lawyers. Furthermore, the revenue generated by banks in collecting fees from either consumers or lawyers handling the loan transaction under the guise of sale of loan documents over the course of many years may likely be deemed as unjust enrichment, or even proceeds gained from unlawful activities.
BNM’s notice to banks to end this wrongful practice is therefore timely and absolutely necessary.
Prior to BNM’s directive, such fees were imposed by banks on the purchase of bank loan documents, which are largely standardised documents downloaded from the banks’ portals, and which borrowers are required to sign when they take out a loan. Banks charged a fee for the purchase of these documents, which could range from RM100 to RM600, even though the cost of printing these documents were borne by the banks’ solicitors. Such fees were passed on to the borrowers, and the borrowers were not allowed to dispute such charges, nor is there an option to amend the terms and conditions of the loan agreement. The borrowers were at the losing end due to the unequal bargaining power between them and the banks. For many borrowers, they have no other option than to accept such one-sided terms or risk having their loans rejected entirely.
The Malaysian Bar has consistently taken and maintained the position that banks should not be allowed to charge and collect any fees for any loan or other documents provided by them, and this should include all types of loans granted by banks, without confining it to just housing loans. Fees or charges on other types of loan-related documents such as commercial loans, perfection of charge, and deed of receipt and reassignment, should also be rightfully abolished.
In the course of the last two weeks, the Malaysian Bar has been vigilant in monitoring the developments to observe possible creative ways that banks may resort to, such as imposing innovative types of fee or charges either on borrowers or even transferring it to lawyers. We have thus far detected a bank transferring such costs to lawyers under the guise of “refundable rectification fee” which coincidentally took effect on 1 February 2023, and coincidentally for the same amount as the loan documentation fee. In short, it was a seamless transfer of costs — a mere change of name of fee — back to borrowers or lawyers, and one that involves no loss of revenue for the bank.
There are other various types of creative charges imposed by banks, such as rectification fee, re-execution fee, reprocessing fee, systems fee — all of which continue unabated and passed on to lawyers.
The Malaysian Bar calls on BNM to continue carrying out its statutory duties as the regulatory body to ensure that all banks adhere strictly to its guidelines, and to prevent banks from financially burdening the people.
Karen Cheah Yee Lynn
16 February 2023
1 “Documentation fee for housing loan borrowings abolished, says report”, EdgeProp.my, 1 February 2023.