Loan Scams in Malaysia

Loan scams have been identified as a notable concern in Malaysia, leading many individuals to seek financial aid. Scammers exploit this need by posing as legitimate lenders and tricking individuals into paying upfront fees to secure loans, which are never provided. Common signs of such scams include requests for upfront payments before loan approval, which no legitimate lender would demand. Scammers may advertise personal loans and other financing products via social media, SMS, Telegram, and WhatsApp, often pretending to represent reputable banks or financial institutions.

Loan scams pose serious financial risks to individuals. The upfront fees paid to scammers can result in significant financial loss, and the false hope of receiving a loan can lead to further financial and emotional distress. As of April 2023, loan fraud losses in Malaysia spiked to over RM8 million, indicating a high frequency of such scams.

Types of Loan Scams in Malaysia

Advanced Fee Fraud

Advanced Fee Fraud is a form of scam where fraudsters demand upfront payments under the guise of processing fees for loans that never materialise. The scammers vanish once the fees are collected without providing the promised loans​.

One variant of the advanced fee fraud found in Malaysia involves emails from fraudulent law firms promising a large sum of money, which requires the victim to make an upfront payment to secure the purported funds​.

Loan Phishing Scam

Loan phishing scam involves fraudsters creating fake websites or digital interfaces that mimic legitimate financial institutions to harvest personal and financial information from unsuspecting victims​.

Warning signs of a loan phishing scam include receiving phishing calls, unsolicited communications asking for personal or security information and links that lead to unsecured login sites instead of secure ‘https’ URLs​

Fake Loan Offers

Fake Loan Offers involve fraudulent parties posing as legitimate lending institutions, offering enticing loan terms to lure victims into their trap, after which they abscond with any payments made or information provided​.

For example, the Penang police have busted fake loan scams worth over RM1 million, showing how much such scams can grow and affect individuals across Malaysia​.

Identity Theft

Identity theft involves stealing personal information to apply for loans fraudulently, leaving the victim to deal with the financial and legal repercussions​​.

Identity theft in Malaysia can take various forms, including access to bank accounts via phishing, cloning of cards, and fraudulent registration of utilities, indicating a range of methods by which fraudsters can misuse personal information.

Unlicensed Money Lending

Unlicensed Money Lending refers to illegal lending operations that charge extortionate interest rates, operating outside the legal regulatory framework.

The issue of unlicensed money lending is persistent in Malaysia, with authorities conducting operations like ‘Ops Vulture’ to combat these illegal activities. Despite these efforts, the demand for such loans remains high due to their greater convenience in application processes.

Common Tactics

High-pressure Sales Tactics

High-pressure sales tactics involve creating a sense of urgency and employing forceful persuasion to rush potential borrowers into making decisions without adequately considering the risks.

Unrealistically Low Interest Rates

Scammers lure victims with enticing offers of unrealistically low interest rates, only to reveal hidden fees later, or change the terms to be vastly unfavourable once the victim is trapped.

Asking for Personal Information Upfront

Scammers often ask for personal information upfront under the guise of identity verification, only to use this data for nefarious purposes such as identity theft or other forms of fraud.

Lack of Physical Address

Lack of a physical address is a typical red flag, as it allows scammers to operate as untraceable entities. It often works with an online-only presence, making it extremely difficult for authorities or wronged individuals to pursue them.

Too-easy Approval

Scammers entice victims with the promise of easy approval, often requiring minimal verification to expedite the scam, playing on the desperation of individuals in need of financial assistance.

Victim Demographics

Low-Income Individuals

Low-Income individuals, also categorised as B40 in Malaysia, are often targeted due to financial desperation and lack of alternative loan sources. They may be enticed by the false promise of easy money to alleviate their financial woes.

Small Business Owners

Small business owners in need of capital may fall prey to loan scams as they seek easy financial solutions to keep their operations running.

Elderly Individuals

Elderly individuals, often less tech-savvy, may be financially vulnerable to online loan scams. They are often unfamiliar with digital red flags and the deceptive tactics employed by online scammers.

Desperate Borrowers

Desperate borrowers with urgent financial needs are susceptible to fraud, as scammers prey on their dire situations, offering false financial relief.

Central Bank of Malaysia Regulations

Central Bank of Malaysia Regulations provide the licensing and monitoring framework for legal lending operations in Malaysia, ensuring that they adhere to stipulated guidelines to protect consumers.

Moneylenders Act 1951

Moneylenders Act 1951 provides a legal lending framework, prescribing penalties for unlicensed lending operations, thus offering a level of protection to borrowers from exploitative lending practices.

Financial Services Act 2013

Financial Services Act 2013 regulates financial institutions to ensure consumer protection against fraudulent lending activities, setting standards that these institutions must meet to operate legally.

Unlicensed Moneylenders

Unlicensed money lending in Malaysia refers to illegal lending activities conducted by entities or individuals who do not possess the necessary licenses required by the law. These unlicensed moneylenders, often referred to as loan sharks or “Ah Long,” prey on individuals in need of quick financial assistance and exploit them through exorbitant interest rates and harsh repayment terms.

Unlicensed moneylenders in Malaysia are in high demand from the public because securing loans from them is more convenient than licensed financial institutions. Legal moneylenders must renew their license every two years, and failure to comply with this requirement can result in severe penalties, including fines ranging from RM250,000 to RM1,000,000, imprisonment for up to 5 years, or both.

Unlicensed moneylenders are notorious for their steep interest rates and aggressive, often violent, debt collection practices​. The Moneylenders Act 1951 governs money lending in Malaysia and prescribes penalties for unlicensed lending activities.

Prevention and Reporting

Public Awareness Campaigns

Public awareness campaigns in Malaysia aim to educate the populace about the dangers of loan scams and how to avoid falling prey to unscrupulous lenders.

A notable campaign, called #JanganKenaScam, was launched to increase public awareness and knowledge regarding various scams, including loan scams. This campaign is supported by Malaysian banks and was endorsed by Bank Negara Malaysia.

Bank Negara Governor highlighted the importance of these campaigns, expressing that they reflect the high level of commitment from the private sector towards elevating public awareness concerning financial scams. These campaigns are designed to equip Malaysians with practical knowledge to identify scam tactics and protect themselves and their loved ones.

The banking industry under The Association of Banks in Malaysia and the Association of Islamic Banking and Financial Institutions Malaysia collectively support the #JanganKenaScam awareness campaign. As part of the campaign, the public is urged to follow three simple steps: STOP, THINK, and BLOCK, when they receive any unsolicited communications, which could be potential scam attempts. Through such campaigns, individuals are better positioned to recognise, avoid, and report potential loan scams, contributing to a safer financial environment within the community.

Reporting to Authorities

Reporting to authorities in Malaysia entails informing legal and regulatory bodies about loan scams or fraudulent financial activities. This reporting aids in tracking down scammers, providing justice to victims, and promoting a safer financial environment.

In Malaysia, individuals can report online financial scams to the National Scam Response Centre (NSRC) at the hotline number 997​. In case one falls victim to a scam, contacting the police is crucial, as fraud and scamming are considered criminal offences in Malaysia​. Besides filing a police report, victims can also report financial scams to Bank Negara Malaysia, which may extend the investigation to other authorities dealing with financial crimes, such as the Commercial Crime Investigation Department (CCID).

Verifying Lender Legitimacy

Verifying lender legitimacy in Malaysia involves ensuring that the lending entity is licensed and operates under the guidelines set by the Malaysian legal framework, primarily the Moneylenders Act 1951.

Individuals can verify the legitimacy of a moneylender by checking whether they have a valid license as a moneylender through the i-KrediKom application launched on 5 April 2019​. Warning signs of a scam include lenders not interested in the borrower’s credit history, mainly if they advertise with phrases like “No hassle – fast money guaranteed” or similar enticements​. Three easy ways to identify a licensed moneylender include ensuring the lender operates under the Moneylenders Act 1951, which governs money lending in Malaysia.

Educational Resources

Educational resources in Malaysia include various programs, initiatives, and events aimed at elevating financial literacy, promoting responsible economic behavior, and aiding individuals in recognising and avoiding financial scams.

For example, the Financial Education Network (FEN) launched Financial Literacy Month 2022 to enhance consumer awareness of key financial issues and improve Malaysian financial literacy. FEN also introduced the National Strategy for Financial Literacy 2019-2023 to elevate financial literacy and promote responsible financial behaviour. Other initiatives include the AKPK Financial Literacy Symposium and various financial education programs targeting secondary school students to equip them with the knowledge to avoid financial scams and get-rich-quick schemes.

Source: Malay Mail, iMoney, Maybank2u, The Vibes, HLB, CTOS, Ask Legal, BNM, ABM, Alliance Bank.

Leave a Comment