Consumer Credit Act 2025 and the Regulation of Hire Purchase

Paying three monthly instalments for a pair of shoes, or driving home a new car with a 10% deposit — two credit transactions that are commonplace for Malaysians, yet until recently were governed by very different legal worlds. Now, both are being reorganised at nearly the same time.

What is changing in Malaysia’s consumer credit landscape?

For years, non-bank credit in Malaysia was scattered under various authorities. Banks were regulated by Bank Negara Malaysia, licensed moneylenders and pawnbrokers under a ministry, and hire purchase under KPDN — but new models such as Buy Now Pay Later (BNPL) grew rapidly in a grey area with no dedicated regulator.

Two major legislative moves change this:

• The Consumer Credit Act 2025 (CCA) — a new umbrella law that brings previously unregulated non-bank credit providers under a single commission.
• The Hire-Purchase (Amendment) Act 2026 — refreshing the nearly 60-year-old Hire-Purchase Act 1967, abolishing old interest formulas that disadvantaged consumers.

Both are separate, but together they mark Malaysia’s shift towards more transparent consumer credit.

What is the Consumer Credit Act 2025 and who does it regulate?

The Consumer Credit Bill was passed by the Dewan Rakyat on 21 July 2025, gazetted as Act 873 on 31 December 2025 (after Royal Assent on 22 December 2025), and comes into force on 1 March 2026. At its core is the establishment of the Consumer Credit Commission (CCC) — a statutory body that oversees the licensing and registration of credit businesses and credit service providers.

The CCC is expected to oversee around 250 entities. The most conspicuous target is the exploding BNPL market: about 16 providers serve 6.5 million accounts, with transactions reaching RM9.3 billion in the first half of 2025 — a rise of nearly a third compared with RM7.1 billion in the second half of 2024. The entire non-bank credit sector is estimated to be worth around RM15 billion.

The scope of the CCA covers:

• Buy Now Pay Later (BNPL) and credit sales
• Licensed moneylenders and pawnbroking
• Non-bank hire purchase, leasing and factoring
• Debt collection and debt management services

Those not covered include licensed banks (which remain under BNM), credit and charge cards, insurance and takaful, and cooperatives.

The Second Minister of Finance, Datuk Seri Amir Hamzah Azizan, stressed that under the CCA, credit providers must assess borrowers’ ability to repay — including young people — ensure contracts are fair and fees transparent, and practise ethical debt collection, so that borrowers can settle their debts without serious financial strain.

How is CCA licensing being implemented in phases?

The CCA does not change everything overnight. Its implementation is phased, allowing existing authorities to gradually hand over functions to the CCC.

Phase	Period	What happens
Phase 1	From commencement to ~2027	The CCC begins regulating previously unregulated credit (e.g. BNPL); existing authorities continue to oversee their respective sectors
Phase 2	Expected from 2028	The CCC absorbs regulatory functions from KPDN and the Ministry of Housing and Local Government
Phase 3	Targeted for 2031	Full consolidation of all consumer credit regulation under the CCC, subject to government review

For BNPL merchants, the immediate timeline matters more: licensing requirements begin on 1 June 2026, and providers are given six months from that date to comply — making the deadline around 1 December 2026.

Where does the Hire-Purchase Act 1967 fit into this picture?

The Hire-Purchase Act 1967 (Act 212) is a specific law, not part of the CCA. It governs the form and content of hire-purchase agreements as well as the rights and responsibilities of the hirer and financier — especially for motor vehicles, the most common way Malaysians own a car. It is administered by KPDN (the Ministry of Domestic Trade and Cost of Living), with BNM regulating banks that offer hire-purchase products.

Key protections under this Act include:

• A 10% minimum deposit of the vehicle’s cash price (financiers may set it higher).
• The hirer’s right to receive a copy of the agreement and to request a statement of the outstanding balance.
• Repossession protection: under section 16(1A) of the Hire-Purchase Act 1967, if the hirer’s instalment payments exceed 75% of the cash price, the vehicle cannot be repossessed without a court order; a mandatory notice (not less than 21 days, per the Fourth Schedule) is given before any repossession.

For now, the two frameworks operate in parallel: hire purchase by banks and finance companies remains under the Hire-Purchase Act 1967, while the CCA captures non-bank credit providers that have long slipped through the net.

Why are the flat-rate method and the Rule of 78 being abolished?

This is the reform most felt by consumers. The Dewan Rakyat passed these amendments on 8 October 2025 and the Dewan Negara on 1 December 2025. It was gazetted on 30 January 2026 as the Hire-Purchase (Amendment) Act 2026 and comes into force on 1 June 2026, together with the subsidiary Hire-Purchase (Terms & Charges) Regulations 2026. The new rules apply to all hire-purchase agreements made on or after 1 June 2026; agreements signed before that date remain under the original 1967 rules.

Two old formulas are being eliminated:

• Flat rate: interest is calculated on the entire original loan amount across the full term, even though the actual balance decreases each month.
• Rule of 78: front-loads the interest portion onto the early years, making it harder for a hirer who wants to settle the loan early.

Both are replaced with the reducing-balance method for interest calculation and effective interest rate (EIR) disclosure so that consumers can compare offers fairly.

Feature	Before the amendment	After the amendment
Interest calculation	Flat rate / Rule of 78	Reducing balance
Cost disclosure	Not uniform	Uniform EIR
Early settlement	High penalty (front-loaded interest)	Reduced penalty
Signature	Physical	Digital signature allowed

The EIR is capped at 17% per year for fixed-rate loans with terms up to five years, and 16% per year for terms exceeding five years (variable-rate loans remain at 17% per year) — these caps are set by the Hire-Purchase (Terms & Charges) Regulations 2026. With effect from 1 June 2026, the new rules apply immediately to agreements made on or after that date.

What does all this mean for you?

For consumers: more protection. BNPL providers must now assess your ability to repay and disclose fees transparently, while new hire-purchase contracts will display a comparable EIR — and settling a loan early no longer penalises you as heavily as before.

For credit businesses: new compliance obligations. BNPL, factoring, leasing and debt collection companies need to obtain a licence or register with the CCC, while hire-purchase companies need to update their interest calculation systems for agreements made on or after 1 June 2026.

For retailers offering BNPL instalment plans: make sure your credit partners are licensed by the deadline, because operating without a licence will be an offence under the CCA.

What’s next

The landscape is still moving. Watch for the following:

• Further CCC regulations: details on licensing requirements, minimum capital and codes of practice are expected to be issued ahead of the June–December 2026 licensing deadline.
• Hire Purchase amendment coming into force: the Hire-Purchase (Amendment) Act 2026 was gazetted on 30 January 2026 and comes into force on 1 June 2026 — ensure fixed-/variable-rate interest calculation systems comply with the Hire-Purchase (Terms & Charges) Regulations 2026 for new agreements.
• Phase 2 and 3 transition: regulatory functions will move to the CCC from 2028 and could be fully consolidated by 2031 — check whether your sector is affected.

For specific decisions, refer to the official text of the Consumer Credit Act 2025 (Act 873), the Hire-Purchase Act 1967 (Act 212) on the KPDN portal, and official announcements from the Consumer Credit Commission. This content is an AI-generated draft for general information purposes and is not legal advice.