Regulations for Total Loss Settlement of Vehicle Leasing Contracts

In the Name of Allah, the Most Gracious, the Most Merciful

Saudi Arabian Monetary Authority
Reference: Main

Office
Deputy Governor for Supervision
Number:
Attachments:

Circular

To:
Peace, mercy, and blessings of Allah be upon you,

Subject: Regulations for Total Loss Settlement of Vehicle Leasing Contracts

With reference to the powers granted to the Saudi Arabian Monetary Authority under the Banking Control System issued by Royal Decree No. (5/M) dated 22/02/1386H, the Financing Companies Control System issued by Royal Decree No. (51/M) dated 13/08/1433H, and the Leasing System issued by Royal Decree No. (48/M) dated 13/08/1433H, and to achieve the Authority's objectives of maintaining fairness in transactions in the financing sector and protecting customers.

You will find attached a copy of the Regulations for Total Loss Settlement of Vehicle Leasing Contracts, which shall apply to total loss cases occurring after January 1, 2020.

For your information and action.

Accept my regards,

Fahd bin Ibrahim Al-Shathri
Deputy Governor for Supervision

AL-AZM

Distribution Scope:

• Banks and commercial banks operating in the Kingdom
• Financing companies operating in the Kingdom

P.O. Box 2992, Riyadh 11169, Phone/Fax: 4667043 - 4667200

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Regulations for Total Loss Settlement of Vehicle Leasing Contracts Muharram 1441H (September 2019)

Saudi Arabian Monetary Authority
Saudi Arabian Monetary Authority

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First: Definitions
The following words and expressions, wherever they appear in these Regulations, have the meanings set out opposite each of them, unless the context otherwise requires:

No.	Term	Definition
1	Lessor	A joint-stock company licensed to conduct financing leasing, including commercial banks.
2	Lessee	The person who owns the benefit of the leased asset under the contract.
3	Initial Lease Payment	The payment made by the Lessee to the Lessor at the beginning of the contract to enable the Lessee to obtain the leased asset. This payment is divided and amortized equally across all lease payments throughout the contract term.
4	Number of Last Due Installment	The number of installments due from the Lessee from the start of the financing period until the date of the incident, according to the repayment schedule attached to the contract.
5	Financing Period	The number of agreed lease installments.
6	Total Loss	The total loss or damage to the vehicle such that repairing the vehicle is technically impractical or economically costly, according to the standards approved by the competent authority in assessing vehicle damages.
7	Settlement at Total Loss	A calculation process through which the remaining debt amount is calculated from the date of the total loss of the leased asset (cessation of benefit).
8	Unamortized Portion of Initial Lease Payment	The amount due to the Lessee from the Initial Lease Payment.
9	Remaining Asset Value	The remaining asset value on the date of the incident according to the repayment schedule included in the financing contract.
10	Incident	An event that caused accidental damage or loss to the financed leased vehicle.
11	Insurance Compensation	The compensation amount paid by the contracted insurance company.
12	Net Settlement Amount	The net credit or debit amount after performing the settlement at total loss.

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Second: Mechanism for Settling a Vehicle Leasing Contract at Total Loss

A. Unamortized Portion of Initial Lease Payment:
(Financing Period ÷ Number of Last Due Installment) × (Initial Lease Payment) =

B. Difference between Remaining Asset Value and Insurance Compensation:
Remaining Asset Value (including the last installment amount, if any) – Insurance Compensation =

• If the amount is greater than zero × Lessee's liability percentage for the incident
• If the amount is less than or equal to zero (take it as is)

C. Net Settlement Amount:
= Unamortized Portion of Initial Lease Payment (A) – Difference between Remaining Asset Value and Insurance Compensation (B)

D. Action Taken Regarding the Net Settlement Amount:

• If the Net Settlement Amount is greater than zero, the Lessee shall be compensated with the full Net Settlement Amount minus any amounts due from the Lessee (unpaid) before the date of total loss, if any.
• If the Net Settlement Amount is less than zero, the Lessor has the right to claim from the Lessee the Net Settlement Amount + any amounts due from the Lessee (unpaid) before the date of total loss, if any.