Previously, banks in Malaysia have been imposing a loan documentation fee of up to RM600 when processing housing loans. However, in Feb 2023, Bank Negara Malaysia (BNM) issued a notice for banks to cease charging loan documentation fees, much to the relief of property stakeholders.
What is the loan documentation fees?
Also referred to as ‘sale of pre-printed forms’ or ‘ administration fees’, these fees were imposed by the banks upon lawyers who managed real estate transactions – upon which, this cost was passed on to the borrowers.
In detail, the financing industry practice was – whenever anyone wanted to apply for a housing loan in Malaysia, the borrower will need to firstly apply for a housing loan and the bank will issue an “Offer Letter” setting out the key terms of the loan such as the financing amount, tenure and interest rate. After the borrower has accepted the Offer Letter, the borrower will have to execute a loan agreement with the bank.
The bank will then instruct its lawyer to prepare this loan agreement (hereinafter referred to as ‘security documents’) and this is where it gets interesting.The bank will have its own standardized security documents and the lawyer only needs to input the details of the borrower and the property into this set of documents. Hence, banks do not incur any additional cost to prepare these security documents.
Why is it a good move to abolish the loan documentation fees?
HBA applauds the recent directive from Bank Negara Malaysia (BNM) that banks must immediately cease charging loan documentation fees on conventional housing loans and Islamic housing loans.
The move by BNM for Banks to cease charging these loan documentation fees shows that the new unity government under our current Prime Minister, YAB Datuk Seri Anwar Ibrahim is caring and cognizant of the challenges faced by the Rakyat in dealing with a slowing global economy and rising cost of living.
Since 2013, banks have been ‘selling’ and ‘billing’ the security documents to the lawyers for prices ranging between RM100 to RM600 (depending on the requirement of security documents). Note that this is not the cost of printing these documents for the borrower but it is only for the softcopy of such standardized security documents. As a result, the appointed lawyer had no choice but factor this ‘purchase of pre-printed forms’ that was imposed by the Bank in form of “loan documentation fee” or guised by whatever name in their invoice to the borrower.
Although the amount might not seem to be a lot compared to the loan for the property, the savings of between RM100 to RM600 will lighten the burden of the borrower especially on loans taken for the affordable properties category (below RM300,000).
There is also the issue of fairness to the borrower. As the security documents have already been standardized, the banks will not incur any more additional cost on such agreements and hence, should not be allowed to impose any additional fees to borrowers. Banks should not profit from sale of pre-printed forms. They are in the business of giving out loans and taking deposits.
Imposing a fee on loan documents is actually illegal
Unbeknownst to many, imposing the fees as the sale of loan documents is a breach of Section 37(2) of the Legal Profession Act 1976. That subsection states that any unauthorised person either directly or indirectly draws or prepares documents relating to any immovable property for or in expectation of any fee or gain shall be guilty of an offence under that subsection.
Look into other unfair charges by banks
Once again, HBA applauds BNM and our honorable Prime Minister for taking care of the interest of the Rakyat and for finally disallowing Banks from charging loan documentation fees. Special thanks too must be recorded to Dato Dr Ir Andy Seo, co-chair of PEMUDAH and Dato Pardip Kumar Kukreja in the technical working group on Efficiency and Accountability initiated by Malaysia Productivity Corporation (MPC) to make things happen.
HBA urges BNM and our Prime Minister to look into additional areas where banks are also charging Borrowers unfair amount of fees for items where the Banks do not incur any cost such as issuing Redemption Statements when borrowers wish to fully settle their housing loans. There are more areas that Banks can be more friendly to their borrowers. For too long, loan borrowers have been at the losing end as many do not fully understand the terms and conditions (T&C) stated in housing loans.
Also find out How to negotiate for the best housing loan interest rates