The Bank of Thailand Plans to Regulate the Business of the Hire Purchase and Leasing of Cars and Motorcycles by a Non-Bank
During the period 2017 to 2021, there has been an ever-increasing number of outstanding debts from the business of Hire Purchase1 and Leasing2 of Cars3 and Motorcycles4 (the “Business”). In fact, it amounted to 12 percent of all household debt, in which approximately one-third of such amount arose from the operation of non-bank operators (“Non-Bank”), which are currently not clearly regulated or supervised by relevant government authorities. As a result, the Bank of Thailand (“BOT”) issued the draft Royal Decree indicating certain types of financial business operations to be under the Financial Institution Business Act B.E. 2551 B.E (2008). …. to regulate the Business of the Hire Purchase and Leasing of Cars and Motorcycles (“Draft Royal Decree”), by virtue of the Financial Institution Business Act B.E. 2551 (2008) (“FIBA”), to govern the Business operated by Non-Bank5; the purposes of which are as follows:
i. Manage household debt at an appropriate level and manage the Business operators, specifically Non-Bank, so that they do not encourage their consumers to incur excessive debt; and
ii. Promote and ensure that consumers receive a fair service from the Non-Bank operators and are provided with sufficient information for their decision making before entering into the services.
In this regard, according to the Draft Royal Decree, Non-Bank Business operators will be regulated by having to comply with various obligations as further announced by the BOT, for example:
i. Information Disclosure
The Business operator shall disclose certain information prescribed by the BOT in accordance with the criteria further issued by the BOT, such as: interest rates, discount rates and service charges, which shall be publicly disclosed at its office or any other media platform as prescribed by the BOT; details on how to calculate annual service rates; or any other information with regard to the Business operator.
ii. Standards for the Execution of Certain Agreements
There will be standards for the execution of certain agreements further prescribed by the BOT, which the Business operator is required to comply when executing such agreements with its customers. For example, an unlimited guarantee by individuals is not permitted under the Draft Royal Decree; or the Business operator shall comply with certain conditions prescribed by the BOT if it intends to change or revise certain provisions under the agreement with its customer; if such agreement gives the operator the right to amend such provision unilaterally.
iii. Service Fees
The Business operator shall collect the service fees to the extent permissible by the BOT, including but not limited to interest, service charge, deposit, collateral and penalty.
iv. Standards of Operation
The Business operator shall comply with the rules and conditions further prescribed by the BOT, in which such rules and conditions may depend on type of businesses, customers, or agreements executed between the operator and its customers, also in the case where the Business operator outsources a third-party service provider to conduct its business.
However, such obligations of the Business operator are currently broadly stipulated under the Draft Royal Decree because no sub-regulations have been issued yet. In addition, for the avoidance of doubt, under the Draft Royal Decree, the Business operator does not have to obtain any licences to perform its business; nevertheless, the obligations as aforementioned shall be complied with.
With regard to supervision of the Business by the BOT, the Business operator shall submit a report or certain documents to the BOT showing the information relevant to its business within the specified period. In addition, the BOT is eligible to appoint its authorities or any third party to be an inspector to investigate the business, assets and liabilities of the Business operators, as well as its debtors and related persons, whether generally or specifically. According to the consideration of the report or upon the inspection of the relevant authorities, if it turns out that the operation of the Business does not comply with the provisions under the Draft Royal Decree or its sub-regulations, the BOT is permitted to deliver a warning letter to the Business operator or its related person; to suspend the act which is in violation and order it to comply with the provisions under the Draft Royal Decree. If such violation still exists, the BOT is also eligible to order the operator to resolve its non-compliance or cease its operation, whether in whole or in part, within the specified period. Under the specific provisions of the Draft Royal Decree, the penalties for said violation may include a fine or imprisonment, or both.
For your information, the Draft Royal Decree has been open for public hearing since last August and will be proposed to the Cabinet for its consideration and issued as an official Royal Decree during September to December this year (2022). According to such issuance, it will come into force after 180 days from the date of its publication in the Government Gazette, and the BOT will accordingly prepare and issue its relevant sub-regulations or notification.
For more information on the Draft Royal Decree, please visit the BOT website: https://www.bot.or.th/Thai/Segmentation/Public/PublicHearing/Pages/default.aspx
This is intended merely to provide a regulatory overview and not to be comprehensive, nor to provide legal advice. Should you have any questions on this or on other areas of law, please do not hesitate to contact any of the authors.
- 1 “Hire Purchase” under the Drafted Royal Decree means a contract, under which the owner of a car or motorcycle (“vehicle”), as the case may be, rents out such vehicle and promises to sell it or provide it to be under certain rights of the lessee with a condition that the lessee shall pay a certain amount of compensation for a specific period, without considering the purpose of such hire purchase.
- Note: The definition is referred to under Section 572 of the Civil and Commercial Code.
- 2 “Leasing” under the Drafted Royal Decree means renting a car or motorcycle (“vehicle”) in the form of a financial lease in which the lessor procures the vehicle, as per the lessee’s request, from a manufacturer, dealer or other persons, or the seizure of another lessee’s vehicle for the lessee’s use, provided that the lessee has an obligation to maintain and repair such leased vehicle. Under a Leasing contract, the lessee would not be able to terminate the contract unilaterally prior to the expiration date of the agreement. At the expiration of the lease, the right to purchase the vehicle is subject to the agreement between the lessor and the lessee.
- Note: The definition is referred to under the Notification of the Bank of Thailand No. SorNorSor. 01/2551 Re: Permission for Commercial Banks to conduct Hire Purchase and Leasing Business, dated 3 August 2008.
- 3 “Car” under the Drafted Royal Decree means a public vehicle, service vehicle and private vehicle.
- Note: The definition is referred to under Section 4 of the Vehicle Act, B.E. 2522 (1979). For the avoidance of doubt, a Car under the Vehicle Act does not include trailer, roller or tractor.
- 4 “Motorcycle” means a vehicle driven by a motor or electric power with not more than two wheels, or not more than an additional wheel in a sidecar, and shall include a bicycle equipped with motor driven devices.
- Note: The definition is referred to under Section 4 of the Vehicle Act, B.E. 2522 (1979).
- 5 The Drafted Royal Decree will apply to all of the juristic persons operating the Business in a normal trade, excluding: (i) Financial Institution and Specialised Financial Institutions under FIBA; and (ii) Business operators already regulated by specific government authorities, e.g. taxi cooperatives.