Sri Lanka’s President Gotabaya Rajapaksa has ordered police to stop leasing companies from re-posseing defaulted leases after a three-wheeler owner was allegedly beaten to death by workers employed by a leasing company.
Sri Lanka’s legal finance and leasing companies meanwhile said in a statement that the incident did not relate to any regulated firm but an unauthorised money lending company.
Under a leasing contract, finance leased assets are technically belong to the leasing company and is transferred to the user after full payment of the loan at a nominal cost such as one rupee.
The ability to easily re-possess a vehicle allowed people with no assets, family wealth or an established good credit record, who therefore could not get a loan from a bank, to get vehicle lease with lower risks to deposits of leasing and finance companies.
Vehicles of defaulted leases are re-possessed by leasing companies by ‘seizures’ who follow the vehicle on the road and drive it away when the owner parks it using a key they already have, when defaulted lessees do not voluntary return the vehicle for auction.
Police are then informed that the vehicle is not stolen.
Leases are structured in such a way that capital is recovered later in the contract.
The President’s office said the methods used to recover leases were ‘unlawful’ and was also against a circular issued by President’s Secretary P B Jayasundera on March 23, 2020 halting re-possession for six months as part of a debt moratorium ordered for Covid-19 relief.
“As the method adopted by the leasing companies to seize vehicles of those who had failed to pay their loan installments is unlawful, no room should be left to continue this practice, President Gotabaya Rajapaksa has ordered the Police,” a statement from the President’s office said.
“In this context, seizing of vehicles for not paying the installment is a breach of the Government order,”
“President informed the Police not to allow vehicles to be seized on the ground of non-payment of installments”.
Leasing companies inform police that a vehicle had been seized and not stolen.
“Leasing companies do not inform the Police prior to such seizing” the President’s office said.
“They lodge complaints only after taking over the vehicle. This kind of forceful action sometimes leads to grave violence.
“As such, the President instructed the Acting IGP Chandana Wickremaratne not to entertain complaints received from the leasing companies after seizing.”
Sri Lanka’s Finance Houses Associationits 41 licensed finance companies who were its members had “already offered debt moratorium as stipulated by the Government of Sri Lanka which was in line with Circular No. 04 and 05 of 2020 issued by the Central Bank of Sri Lanka,
In Sri Lanka deposit taking and lending is a regulated business and unauthorized lenders cannot legally enforce contracts, leading to strong arm tactics to recover money by unauthorized lenders.
(Source: Economy Next)