Kuala lumpur: A total of 11 financial institutions and hire purchase companies are set to offer hire purchase financing under the amended provisions of the Hire Purchase (Amendment) Act 2026, which will come into effect on June 1, as announced by the Ministry of Domestic Trade and Cost of Living (KPDN). The ministry's minister, Datuk Armizan Mohd Ali, highlighted that the second phase of implementation is anticipated to commence in September 2026. Consumers interested in the benefits of the new provisions are advised to perform the necessary checks before committing to hire purchase agreements.
According to BERNAMA News Agency, financial institutions and hire purchase companies currently preparing, including those undergoing system integration and modifications, have been given a transition period until March 31, 2027. They are encouraged to align with the new legal framework promptly and inform the ministry once the transition is complete.
Armizan emphasized that the ministry will officially enforce the Hire Purchase (Amendment) Act 2026 starting June 1, as part of efforts to bolster consumer protection and ensure a fair, transparent, and competitive hire purchase financing system. Concurrently, the Hire Purchase (Term Charges) Regulations 2026 [P.U.(A) 171/2026] will also be enacted.
The enforcement follows amendments to the Hire Purchase Act 1967, passed by Parliament in 2025 to fortify the legal framework governing the consumer credit ecosystem. Among the persistent consumer complaints addressed are issues related to vehicle hire purchase transactions, particularly hidden interest charges and high outstanding loan balances despite early settlement.
The key amendments include the elimination of the flat interest rate system and the Rule of 78 method, which previously allocated a significant portion of early loan instalments to interest with minimal reduction in the principal. The revised law introduces the Reducing Balance Method and Effective Interest Rate for fixed-rate hire purchase financing, promoting transparency and fairness in early loan settlements.
Additionally, the amendments permit the use of digital and electronic signatures and document submissions, aligning with the government's digitalisation agenda to enhance the hire purchase process's efficiency and effectiveness. KPDN also stated that the amendments mandate two due diligence checks to verify borrowers' identities, aimed at mitigating fraud risks.
Armizan stated that these legal reforms reflect the government's dedication to fostering a transparent, accountable, and integrity-driven credit ecosystem, while improving industry governance and protecting consumers' rights and interests nationwide.