A directive from Bank Negara Malaysia (“BNM”) stating that banks must immediately cease charging “loan documentation fees” on housing loans (for conventional loans) and housing financing (for Islamic financing) documentation took effect on 1 February 2023.
Context
Whenever a borrower accepts an offer letter after applying for a loan, the bank will instruct its solicitors to prepare a loan agreement (i.e. the security document) to be executed by the borrower. In general, Banks have their own standardised security documents wherein the bank’s solicitors will download the documents from the bank’s website and, after completing the relevant particulars of the borrower and the loan, print them for the borrower’s execution. The selling of the soft copies of said standard loan documents for a “fee” normally costs between RM100 and RM600 depending on the requirements of the security documents.
Prior to the directive, solicitors were compelled to either pass the fee on to the borrower as part of the documentation fee or to absorb it themselves, causing said solicitors to be paid less for work rendered. This was financially burdensome to consumers and solicitors alike.
Bar Council’s stance
The Bar Council’s Conveyancing Practice Committee commended BNM’s directive as the Committee has called out this practice over the years, stating that the imposition of such fees contravenes s37(2) of the Legal Professions Act 1976. Said provision states that any unauthorised person who either directly or indirectly draws or prepares any document or instrument relating to any immovable property or to any legal proceedings or to any trust shall, unless he proves that the act was not done for or in expectation of any fee, gain or reward, be guilty of an offence under this subsection. In short, only lawyers can charge a fee for the preparation of documentation for immovable property.
Besides, according to the Malaysian Bar, “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.”
Consumers Association’s stance
The Federation of Malaysian Consumers Associations secretary-general viewed the issuance of this directive as a positive move by BNM to assist consumers in facing the cost of living issue. This was supported by the Consumer Association of Penang president who stated that abolishing the documentation fee would ease the financial burden of borrowers.
Effect of the directive
Ever since the directive took effect, some banks have resorted to creative ways to ensure that said fee remains in place. According to the Malaysian Bar, “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.” Banks have also exercised creativity by imposing other types of charges like rectification fee, re-execution fee, reprocessing fee, systems fee and so on which are then passed on to lawyers.
Conclusion
The issuance of the directive by BNM to abolish loan documentation fees has been lauded as a good step in the right direction. Hopefully, BNM will strictly enforce the directive so that banks will not unnecessarily burden consumers and solicitors alike.
