AS of March 2025, Malaysia’s household debt reached RM1.65 trillion, equivalent to 84.2 per cent of GDP. Household financial assets, however, remained higher at RM3.4 trillion (178.2 per cent of GDP), according to the Finance Ministry. While this asset buffer provides some comfort, the rising pace of borrowing highlights growing financial vulnerabilities.
To address these risks, the Consumer Credit Act (CCA) 2025, expected to be gazetted by year-end, seeks to strengthen consumer protection, regulate credit providers, and promote fair lending. The Act introduces a unified framework to enhance public trust in the financial system and align Malaysia with international best practices.
Why the CCA Matters?
Malaysia’s household debt grew by 46 per cent in four years, rising from RM1.13 trillion in 2021 to RM1.65 trillion as of March 2025. The country now records one of Southeast Asia’s highest household debt-to-GDP ratios – second only to Thailand. In comparison, Singapore stands at 69.7 per cent, Indonesia at 17.2 per cent, and the Philippines at 9.9 per cent.
Debt composition remains dominated by mortgages (58-60.5 per cent), followed by personal loans (~14 per cent), car loans (~13 per cent), and credit cards (~3 per cent). While housing loans are generally secured, personal loans and credit cards carry higher interest and are more prone to overborrowing. The same topic was highlighted in The Star paper this past week.
The Role of the CCOB
Central to the Act is the Consumer Credit Oversight Board (CCOB), a new regulator responsible for licensing, supervising, and enforcing compliance across the credit market. This includes not only banks but also non-bank lenders, microcredit agencies, and “buy now, pay later” platforms.
The CCOB’s mandate focuses on:
Ensuring transparent loan terms and conditions;
Promoting fair repayment structures; and
Protecting consumers from predatory lending practices.
For years, parts of Malaysia’s credit market operated in regulatory grey zones. The CCA closes these gaps, ensuring equal standards for banks, fintech firms, and other lenders.
Debt Trends: Warning Signs
Between 2019 and 2023, household debt rose by RM110 billion. Although the debt-to-GDP ratio has eased slightly from its pandemic peak, absolute borrowing remains high.
Personal loans have expanded, suggesting households increasingly borrow for living expenses or debt consolidation.
Car loans remain significant due to transport needs and lifestyle aspirations.
Credit card debt, though smaller, is volatile and risky due to high interest and revolving balances.
Risks of High Household Debt
Household debt poses risks not only to individuals but also to the wider economy. Over-indebted households with Debt Service Ratios (DSR) above 60% are 5.5 times more likely to default during economic downturns.
Key risks include:
Default and hardship – missed payments may lead to repossession, legal action, and long-term credit score damage;
Reduced spending power – high debt servicing reduces disposable income, slowing domestic consumption;
Economic vulnerability – during downturns, indebted households cut spending sharply, deepening recessions;
Mental and social stress – debt burdens often lead to anxiety, family disputes, and lower productivity; and
Systemic risk – rising defaults can weaken lenders and restrict credit availability across the economy.
Transparency as a Deterrent
One of the Act’s most significant features is standardised disclosure of loan terms, ensuring borrowers fully understand costs and obligations. This promotes comparability and competition among lenders.
Borrowers will benefit from:
Standard loan statements with total repayment amounts;
Clear breakdowns of principal vs. interest in each instalment; and
Upfront disclosure of all fees, including early repayment charges.
By eliminating hidden clauses and fine print, the Act reduces predatory practices and empowers borrowers to make informed choices.
Shifting Borrowing Culture
Malaysia’s high household debt reflects not only economic needs but also cultural attitudes toward credit. Easy financing has sometimes encouraged living beyond one’s means.
The CCA, paired with financial literacy campaigns, could shift borrowing behaviour toward more productive purposes such as education, business investment, and essential assets – rather than short-term consumption.
Implementation Challenges
The CCA’s rollout will not be without difficulties. Malaysia’s credit market is diverse, and enforcing compliance across banks, cooperatives, fintech firms, and informal lenders will require significant oversight. Smaller providers may face challenges adapting to stricter rules, while enforcement will demand resources and coordination.
Despite these hurdles, the Act’s benefits are clear:
Lower default risks as borrowers take on manageable debts;
Greater trust in credit markets, encouraging responsible borrowing; and
A stronger economy, less exposed to shocks from household over-indebtedness.
A Call to Action for Consumers
Ultimately, the CCA provides a safety net, but financial responsibility rests with individuals.
Malaysians should:
Regularly review their debts and repayment plans;
Seek advice from licensed advisors; and
Use the Act’s transparency provisions to secure the best credit terms.
Credit can be empowering, but only if managed wisely. The CCA is a tool – its impact depends on how effectively both consumers and lenders use it.
Toward a Fairer Credit Landscape
The Consumer Credit Act 2025 marks a pivotal reform for Malaysia’s financial sector. By unifying regulation, mandating transparency, and promoting financial literacy, it addresses both the causes and consequences of rising household debt.
If implemented effectively, the Act could reverse the upward debt trend, ensuring credit supports empowerment rather than entrapment. For Malaysia, including Sarawak, this reform represents not just legislation but an opportunity to foster a healthier, more sustainable relationship with borrowing.
