New curbs taking a toll on borrowers and moneylenders
TODAY file photo
SINGAPORE — With earnings taking a hit since new curbs were introduced on fees and interest rates they can charge borrowers, some licensed moneylenders are looking at ways to reduce overheads while others have been getting around them by exploiting loopholes.
Changes imposed since last October, including a 4 per cent cap on monthly interest rate for late payments and a S$60 monthly limit for late fees, were meant to protect borrowers and put a halt to unfair lending practices, but debt counsellors said some of their clients have ended up in bigger hock due to unscrupulous moneylenders.
The most common manipulation comes in the form of issuing weekly loans, said Pastor Billy Lee, who runs gamblers’ recovery centre Blessed Grace Social Services. Borrowers who fail to settle a debt are charged a 10 per cent upfront administrative fee to “re-contract”, he added.
Taking late fees into account, this often works out to a monthly interest rate of more than 40 per cent, almost twice the rate charged by most moneylenders before the curbs, said Pastor Lee, who has seen a 20 per cent jump in borrowers seeking counselling since new laws were implemented.
“It is almost impossible to pay back a loan of say, S$1,000, within a week. They then have to re-contract and fork out another 10 per cent upfront fees. Many will take another loan from another moneylender to cover the shortfall, resulting in more loans to their name,” he said.
One moneylender who operates in Chinatown told TODAY his shop is moving towards weekly repayment plans because it is “not good business to (issue) long-term loans anymore”. “With such low interest rates, we cannot afford to let customers stretch their loan for 10 to 12 months,” said the moneylender, who declined to be named.
Several moneylenders also said the new interest rate caps have enlarged the borrower market. Although they now get more enquiries and “better quality” customers, all seven whom TODAY spoke to said profits have fallen — up to half, compared with before the regulations.
To reduce overheads, owners of 1133 Moneylenders at Ang Mo Kio are looking to relocate to a place with a cheaper rent. “(The curbs) are taking a big toll ... The new rules don’t help them pay up sooner,” said an operator who wanted only to be known as Joey.
A moneylender operating in Paya Lebar said he will “likely have to exit the market” if things do not change by the end of this year.
“Interest rates may be lower now, but at the end of the day, borrowers still run away,” said the shop’s manager, who wanted to remain anonymous.
Moneylender’s Association of Singapore president Peter Tan said he has come across many industry players who have had to cut down on office space and staff to reduce overheads.
Moneylending is typically a “high risk, high returns” industry, said Mr Tan, who owns Yong Seng Credit. “Borrowers who come to us typically have bad credit rating and cannot borrow from banks. For some, even if you don’t charge them interest, they also won’t repay you,” he said.
Other moneylenders agreed that the new curbs’ impact on bad debt ratio was minimal, despite more stringent background checks on prospective borrowers. One employee from Credit 89, who gave her name only as Jasmine, said her shop’s bad debt ratio has worsened. “We are more selective now and conduct thorough checks on income, loan and employment history ... Some take up more loans and borrow from various moneylenders. It is habitual,” she said.
Credit counsellor Richard Seah believes the new curbs have caused both moneylenders and borrowers to become worse off. “Because of potentially higher interest rates they may chock up (from unscrupulous licensed moneylenders), some borrowers would rather go to loan sharks. It’d be good to enforce monthly loan plans, but this may be unfair to lenders,” he said. About four out of 10 borrowers he counsels fail to repay. “They borrow, gamble, and run away. It’s the borrowers’ attitudes that need to change,” said Mr Seah.
Calling on the authorities to take action to stop “blatant exploitation“ of the new guidelines, Credit Counselling Singapore president Kuo How Nam suggested implementing an administration fee only on new borrowers or banning weekly loans.
“The administrative fee is meant to compensate moneylenders for taking the effort to do background checks on each new borrower, so it should only apply to new borrowers, not even new applications,” he said.
TODAY understands the Ministry of Law, which regulates moneylenders, will make announcements relating to the industry this week.
Over the years, the number of licensed moneylenders here has fallen, corresponding with new regulations. The number stood at 260 in October 2011. This dropped to 218 a year later with the introduction of more stringent advertising laws. It fell further to 185 in June 2014, after curbs on the issuance of new moneylending licences were implemented in 2012.
As of Jan 1 this year, there were 169 licensed moneylenders.
