Issuance of the Contracts Committee’s Notification Prescribing the Hire-Purchase of Car and Motorcycle Business as a Contract-Controlled Business B.E. 2565 (2022) under Thailand’s Consumer Protection Act B.E. 2522 (1979)

In Thailand, the provision of car financing to consumers by way of a hire-purchase contract is regarded as contract-controlled business. Said business has been governed by relevant notification(s) issued by the Contracts Committee from time-to-time in accordance with Section 35bis of the Consumer Protection Act B.E. 2522 (1979) (as amended)^*1 ; in order to provide protection to consumers against unfair or disadvantageous contract terms imposed by business operators, who usually have higher bargaining power. In such regard, the contract for hire-purchase of a car and/or motorcycle for a consumer’s personal use (not for commercial use), to be, which is to be entered into between the individual consumer and the business operator, shall have the terms and conditions in compliance with those set forth by the relevant notification(s) issued by the Contracts Committee, and the business operator is obliged to deliver the hire-purchase contract in compliance with those terms^*2 . 
Following the Contracts Committee’s first notification prescribing the hire-purchase of car and motorcycle business as a contract-controlled business, which was issued in September 2000, there have been several notifications issued by the Contracts Committee since (each subsequent notification has replaced the preceding notification). Most recently, in an effort to implement progressive measures to help ease the financial difficulties of consumers resulting from the COVID-19 pandemic, which affected the household income of consumers, the Contracts Committee has issued a new notification regarding the hire-purchase of car and motorcycle business, i.e. Notification Prescribing the Hire-Purchase of Car^*3  and Motorcycle^*4  Business^*5  as a Contract-Controlled Business B.E. 2565 (2022)  (“New Notification”). This New Notification was published in the government gazette on 12 October 2022 and will come into force 90 days after the date of its publication, i.e. on 10 January 2023. 

Once such New Notification comes into force, it shall repeal and replace the Contract Committee’s preceding Notification Prescribing the Hire-Purchase of Car and Motorcycle Business as a Contract-Controlled Business B.E. 2561 (2018) (“Preceding Notification”), which has been in effect since 1 July 2018. Under the New Notification, most of the requirements under the Preceding Notification are still included, while the New Notification also includes new changes which, in comparison to the Preceding Notification, result in more beneficial terms and conditions in favour of the consumer. The summaries of key changes imposed by the “New Notification” are as follows: 

(1) Implementation of maximum interest rate on hire-purchase finance 

The New Notification imposes significant changes upon a consumer’s hire-purchase of a car and motorcycle due to its implementation of a maximum hire-purchase interest rate for financing of a private car and motorcycle, which is a newly introduced restriction. Previously, there has never been any maximum interest rate applicable for the hire-purchase contract of a car and motorcycle. Pursuant to the New Notification, the maximum Effective Interest Rates (EIR) are as follows:

(i) Not exceeding 10% per annum for new car;
(ii) Not exceeding 15% per annum for used car; and
(iii) Not exceeding 23% per annum for motorcycle. 

(2) Changes regarding the types of payment the business operator may collect in the case of termination of the hire-purchase contract

The New Notification prescribes that if the lessor (i.e. the business operator) exercises its right to terminate a hire-purchase contract and then proceeds to sell the vehicle under the hire-purchase contract by way of public auction; the lessor may collect the following payments from the sale proceeds (or demand that the lessee pays the remaining amount if the sale proceeds do not sufficiently cover the total amount): 

(i) The defaulted amount of installment payments; 
(ii) The remaining installment payments which were not yet due at the time of termination of the contract, but only for the portion of installment payments that are deemed as the hire-purchase principle amount; this excludes the portion deemed as hire-purchase interest; and 
(iii) Debt collection fees and expenses incurred prior to termination of the hire-purchase contract.  

(3) Increase in the rates of discount on the portion of interest for early debt settlement by the lessee

The New Notification imposes new interest discount rates for early debt settlement by the lessee (i.e. settling of payment before the end of the total payment terms), which was previously set as a flat rate of no less

than 50% discount on the portion of hire-purchase interest for the remaining payments which were not yet due at the time of settlement; regardless of whenever the lessee settles the debt. However, pursuant to the New Notification, the progressive discount interest rates shall be applied depending on how many payments have already been made at the time of settlement, as follows:

(i) If the lessee has already paid no more than one-third (1/3) of the total hire-purchase contract amount, the lessee shall be entitled to no less than 60% discount on the portion of hire-purchase interest applicable to those remaining payments which were not yet due at the time of settlement;
(ii) If the lessee has already paid more than one-third (1/3) but not exceeding two-thirds (2/3) of the total hire-purchase contract amount, the lessee shall be entitled to no less than 70% discount on the portion of hire-purchase interest applicable to those remaining payments which were not yet due at the time of settlement; and
(iii) If the lessee has already paid more than two-thirds (2/3) of the total hire-purchase contract amount, the lessee shall be entitled to a total waiver (i.e. 100% discount) of the portion of hire-purchase interest applicable to those remaining payments which were not yet due at the time of settlement. 

(4) Reduction of the maximum default interest rate 

The New Notification imposes a new maximum default interest rate applicable for a default by the lessee in making installment payments within the due date, which previously, under the Preceding Notification, was at the rate of not exceeding the Effective Interest Rate (EIR) plus 3% per annum, provided that it shall not exceed the maximum amount of 15% per annum. However, pursuant to the New Notification, the maximum default interest rate shall not exceed 5% per annum on the defaulted amount. 

(5) Other miscellaneous changes in favour of the lessee in a hire-purchase contract

The New Notification also prescribes various changes which, in comparison to the Preceding Notification, result in more beneficial terms and conditions in favour of the lessee (i.e. consumer). These changes (among others) include the following: 

(i) Implementation of a restriction that the lessor may not charge a fee exceeding Baht 2,500 if the lessee requests to transfer or assign the contract to a new lessee; 
(ii) Extension of the grace period, from within 15 days to within 20 days of the date of the lessee’s receipt of a written notice from the lessor, in which the lessee may pay the deficit amount of each installment payment after the lessor has deducted other due payments from the said installment payment;
(iii) Extension of prior notification’s period to the lessee and to the guarantor (if any), for the lessee to exercise the right of first refusal to purchase the car or motorcycle at the remaining  price, after the lessor has already repossessed the car or motorcycle, from previously 7 days prior written notice to 30 days prior written notice;
(iv) Imposition of a period of at least 20 days (from the lessee’s receipt of the prior 30 days’ notice as mentioned in (iii) above), in which the lessee may exercise the right of first refusal to purchase the car or motorcycle at the remaining price, after the lessor has already repossessed the car or motorcycle;
(v) Inclusion of the right of the lessee and the guarantor (if any) to transfer the right of first refusal to purchase the car or motorcycle at the remaining price to another person;
(vi) Extension of prior notification period to the lessee and to guarantor (if any), from previously 7 days prior written notice to 15 days prior written notice, prior to the date of auction of the said car or motorcycle; and
(vii) Imposition of the requirement to inform the lessee and the guarantor (if any) in such notice as mentioned in (vi) above of the intended sale price. Such sale price shall not be reduced unless the lessee and the guarantor (if any) are informed in advance, provided that the foregoing requirement is applicable to the first sale auction only. 

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:

Nuttaros Tangprasitti
Partner

Salisa Aninlabon
Associat