Committee makes proposals to address irregularities in finance leasing businesses

K G P Sirikumara, Director, Legal and Compliance Department, Central Bank handing over the report to Prof. W D Lakshman

Jul 08, 2020 (LBO) – The Committee appointed to examine irregularities and illegal activities of the leasing business, recommends short term and long term proposals to address the current problems.

The Committee has placed particular emphasis on the illegal and irregular activities in the business and has identified two sets of activities that require attention, namely, activities of the registered finance business and the activities of the illegal operators.

The Committee has identified that the activities emanating from these categories mainly revolve around the problems related to the recovery of possession of equipment, abuse of the terms and conditions in the finance lease agreements entered into between the lessor and the lessee, certain loopholes in the provisions of the Finance Leasing Act.

Short Term Proposals

  1. Prevention of the use of force in the possession of equipment
  2. Abolition of illegal leasing institutions
  3. Regulation of forms used for entering into finance lease
  4. Awareness of the public and the police on finance leasing
  5. Actively regulate the value paid by lessee for an equipment in a finance lease
  6. Issuing directions related to “substantial failure”
  7. Issuing directions defining the word “Notice” given under Section 39 of the Finance Leasing Act
  8. Issuing directions to specify whether a facility is a hire purchase facility or a finance lease.
  9. Regulation of penal rates
  10. Regulation of valuation related to finance lease

Long Term Proposals

  • Amendments are recommended to the Finance Leasing Act on the following aspects.
  1. Expedite the process of recovery of possession of equipment through the court
  2. Make the concealment of equipment, a criminal offense
  3. Streamline provisions relating to “Offence” in the Finance Leasing Act
  4. Prevent the use of the word “Leasing” by illegal operators
  5. Transfer or assignment of lessee’s rights
  • Further, need for broader consumer protection in the financial sector has also been recommended.

The Central Bank said in response to the request made by the Committee, more than 200 views, proposals, or complaints were received from the general public, civil organizations, financial sector associations and other interested parties in the finance business and finance leasing business.

The Committee yesterday handed over the report to the Governor of the Central Bank.