Unmasking the Hidden Costs Behind ‘Interest-Free’ Loans in Light of Federal Court Ruling.
It is human nature to get excited when we hear the word “free” and one is lured to seize the opportunity to get something for free, for example interest-free advances? But, is it really free?
This article examines the concept of "interest-free" loans/advances, questioning whether they are truly without interest. The Federal court (FC) case, Triple Zest Trading & Suppliers & 2 Ors v. Applied Business Technologies [2023] 8 AMR 225 explores the implications of moneylending practices under the Moneylenders Act 1951 (MA51).
The FC ruling clarified that ‘moneylending” means lending money at interest, and “interest includes any sum exceeding the principal, regardless of what it is termed. As aptly stated by his Lordship, Abdul Rahman Sebli CJ (Sabah and Sarawak), “If a rose by any other name would smell as sweet, a corpse flower by any other name would smell as foul”, that is offers labeled as “interest-free” may still involve hidden costs, with terms disguising high-interest rates. According to the FC, the definition of the three terms, “moneylender”, “moneylending” and “interest” under section 2 must be read together and harmoniously.
The FC ruling underscores the potential legal pitfalls associated with so-called "interest-free" loans/advances, revealing that they may disguise exorbitant interest rates under different nomenclature, and therefore it is important to scrutinize the terms of the loans/advances to ensure compliance with legal standards.