Impact of new announcement on hire purchase firms

Economy June 14, 2018 01:00

By SPECIAL TO THE NATION

GOOGLE THE term ‘vehicle hire purchase’ in relation to Thailand now, and you might come across a bunch of news articles about the New Vehicle Hire Purchase Notification. Particularly, the charging of interest at a flat rate has become a controversial issue.



Despite some comments on new articles that the flat rate interest is no longer chargeable on vehicle loans, the Contract Committee officer unofficially mentioned that the flat rate interest is still chargeable. This new notification definitely won’t turn the whole vehicle hire purchase business upside down but will have some impact on this business sector. 

Who does the notification apply to?

The Notification applies only to vehicles for personal use (not for commercial use). Automobile and motorcycle hire purchase business operators will definitely be affected if they lease automobiles or motorcycles to individual hirers with a promise to sell or transfer the ownership to the hirers, after the hirers have paid the price according to specific terms. 

New definitions and obligations for automobile or motorcycle hire purchase businesses

Most of the requirements under the Hire Purchase Notification are largely the same as the previous notifications. However, the key amendment would be that more information such as a hire purchase payment schedule showing the number of instalment payments, payment due dates, each instalment amount broken down as principal, interest and value added tax, and hire purchase payment collection fees and charges must be added to the agreement. Also, a warning for the guarantor must be added to the guarantee agreement. The new defined terms and obligations of the business operators are as follows:

New defined terms

‘Expenses chargeable by the hiree’ means value added tax, annual vehicle tax, surcharges for overdue annual vehicle tax, fees for each change of automobile engine, fines for changing the engine, colour or fuel type, vehicle or motorcycle registration transfer fees, vehicle license plate fees, fees for substitute vehicle tax labels, details of body colour or fuel type changes, and insurance premiums under the law for the protection of motor vehicle accident victims. 

‘Hire purchase payment collection fees and charges’ means amounts chargeable to the hirer as a debt collection service fee or expenses to collect automobile or motorcycle hire purchase instalments under the law on debt collection. This excludes the cost of tracking and confiscating the hiree’s vehicle or motorcycle.

Note: Other expenses and fees which aren’t mentioned in the Notification are prohibited. 

Obligations

The maximum interest rate. In the previous notifications, hirees were allowed to charge interest on overdue payments at a rate of 16-17 per cent. But under this new notification, the rate of interest is capped at the Effective Interest Rate plus 3 per cent per annum which in any case mustn’t exceed 15 per cent per annum.

The termination and selling process. The termination provision is largely based on the previous notifications, however, the selling or auction steps will be more demanding. For instance, the hiree must notify the guarantor after the hirer fails to respond to a default notice from the hiree so the period of time to sell the confiscated vehicles has been increased. 

To what extent does non-compliance affect business operators?

Business operators should ensure that they include all of the required provisions in the agreements. Any terms and conditions that are specified in agreements to be different from those specified by law will be interpreted to have the same force and effect as those of the provisions specified by law. Likewise, prohibited provisions, if included, in the agreements won’t be legally enforceable.

Failure to comply with the notifications may result in imprisonment for a term of up to 1 year and/or a fine of up to Bt100,000 against the company, its directors and other responsible persons.

Evidently, the new notification once becoming enforceable will provide better customer protection as it lowers the chance of unfair contract terms and conditions and the burden of interest and obligations. So, it’s essential for the business operators and buyers to be alert to this change in the law.

 

This article was prepared by VUNNIPA RUAMRANGSRI, PARTNER AND ANUWAT NGAMPRASERTKUL, Direcor, PwC Tax & Legal, Thailand