A draft bill to supervise non-bank financial institutions that engage in picofinance, auto refinancing, hire purchase, leasing and factoring sailed through the cabinet on Wednesday.
According to Nathporn Chatusripitak, an adviser to the prime minister's office minister, the cabinet approved in principle the draft bill to oversee financial service providers and protect users.
"Currently, the providers of certain financial services that are instrumental to the country's economic system have no supervisory body to regulate them, leading those businesses to lack standardised and fair practices," Mr Nathporn said. "The new act aims not only to raise the quality standard of the providers, but also protect the financial service users and promote the development of the country's financial infrastructure."
In the initial stage, the new law will govern five types of financial service providers: picofinance, car title loans, hire purchase, leasing and factoring.
Pornchai Thiraveja, an adviser to the Fiscal Policy Office, said the bill requires providers of picofinance and car title loans to seek licences from the soon-to-be-established regulator.
Those engaged in hire purchase, factoring and leasing will be required to sign up with the regulator, he said.
The bill requires these service providers to apply for operating licences and register within 361 days of enforcement.
The operators who are required to have licences will be subject to one year in prison and up to a 100,000-baht fine if they fail to comply with the requirement, while those who are required to register will be fined up to 100,000 baht if they fail to do so by the deadline.
These lenders have loans outstanding worth 1.1 trillion baht, of which 500 billion is hire purchase, 270 billion is leasing, 67 billion is factoring, 330 million is picofinance and the rest is car title loans.
These lenders come under the Consumer Protection Act and the Civil and Commercial Code, but the new bill will specifically regulate them.
"In the past, it's been reported that consumers were treated unfairly by lenders operating in the five financial services, due to a lack of a specific regulator," Mr Pornchai said. "Working practices of the regulator under the law will be akin to those of the Securities and Exchange Commission and the Office of Insurance Commission."
Given that the bill is crucial to the financial system, it is expected to win approval from lawmakers before the general election takes place, he said.
Kasikorn Research Center (K-Research) said the impact of the new law on car title loans for the rest of the year is expected to be limited.
Even so, a high-base effect and purchases of new cars following expiry of the five-year lock-up period under the first-time car buyer scheme will curb car title loan growth, K-Research said.
The research house estimates that car title loans will expand by 10% this year, down from 14.6% growth in 2017.