Updated hire purchase law abolishes flat interest rates and Rule 78, introduces digital processes for consumer credit justice from June 1, 2026

KOTA KINABALU: The Hire Purchase (Amendment) Act 2026 will come into force on June 1, 2026. The act aims to translate principles of consumer credit justice and modernisation into hire purchase agreements.

Minister of Domestic Trade and Cost of Living Datuk Armizan Mohd Ali said a transition period could be granted to providers needing time to adjust systems. Providers who are ready may begin offering agreements under the new amendments as soon as the effective date begins.

The amendments abolish the use of the flat interest rate and the Rule of 78 method. Under that method, a large portion of early instalments went towards interest, leaving a small amount for the principal.

This situation caused borrowers settling loans early to face high outstanding balances not reflecting the true loan cost. The amendments also support digital transformation by permitting technology use in hire purchase agreements.

This includes allowing digital and electronic signatures and document submission to improve process efficiency. Armizan said the amendments are part of the 2026 consumer movement agenda’s focus on legal reform.

The agenda covers aspects of implementation, amendment, and drafting of related legislative frameworks. Initiatives implemented since last year include strengthening the legislative framework for the consumer credit ecosystem.

This includes the drafting of the Consumer Credit Act 2025 (Act 873), passed by the Dewan Rakyat on July 21, 2025 and the Dewan Negara on Sept 4, 2025. Act 873, regulated by the Ministry of Finance, took effect on March 1, 2026.

Armizan said these legal reforms show the government’s commitment to creating a more transparent credit ecosystem. They aim to enhance industry governance and protect the rights and interests of consumers nationwide.

 The Sun Malaysia