New loan limits for borrowers to take effect from Q4 this year
TODAY file photo
SINGAPORE — Tighter loan curbs on borrowers are expected to kick in from the final quarter of this year after changes to the Moneylenders Act were passed in Parliament on Monday (Jan 8).
Amid questions from some Members of Parliament on whether the new rules could drive more desperate low-income borrowers to unlicensed moneylenders, Senior Minister of State for Law and Finance Indranee Rajah said amended laws would help prevent over-borrowing.
As part of the changes, those earning less than S$20,000 a year may only borrow up to S$3,000 from all moneylenders combined, while those earning above this amount can only borrow up to six times their monthly income.
Currently, those who earn less than S$20,000 yearly can borrow up to S$3,000 from each moneylender. Those earning less than S$30,000 annually can borrow up to two months’ salary from each moneylender, and those earning below S$120,000 can borrow up to four months’ salary from each moneylender.
To facilitate the new cap, moneylenders will have to obtain credit reports from the Moneylenders Credit Bureau – launched in March 2016 – before granting loans. A regulatory framework will be established to ensure moneylenders keep borrower data confidential.
In first three quarters of 2017, 41,000 people took up loans here – more than in the whole of 2016, said Ms Indranee. Citizens and permanent residents made up 80 per cent of the number.
Outstanding loans during the same period amounted to S$339 million.
Although less than 2 per cent – or about 610 individuals – of Singaporean borrowers who took up loans between March 2016 and March 2017 had an outstanding balance that exceeded the cap, Ms Indranee said: “They still need help managing their debt. We also want to ensure that the numbers do not grow.”
Nine Members of Parliament (MPs) spoke during the debate on the Bill on Monday.
Questioning if the new cap will lead to “even more underground moneylending activities and at even more cut-throat rates for desperate borrowers”, Nee Soon MP Lee Bee Wah asked: “Will the government enhance the penalties for anyone caught operating an illegal moneylender joint? Will those reaching the cap be asked to attend credit counselling?”
Ms Indranee noted that penalties for unlicensed moneylending were increased in 2010, and offenders face up to six strokes of the cane. “The government takes the view that the current penalties are sufficient,” she said.
To complement the implementation of the loan cap, the Moneylenders Credit Bureau will be sending letters to over-indebted borrowers who are likely to exceed the cap when it comes into effect. It will advise them to reduce their debt early, said Ms Indranee.
The letter will also contain details of Voluntary Welfare Organisations that can assist borrowers with financial counselling and debt management, she added.
Non-Constituency MP Daniel Goh of the Workers’ Party wondered if the Government may be “over-tightening” the rules, given unlicensed moneylending cases registered a 10-year low in 2015.
“The Ministry could be fixing something that is not broken. In fact, this ‘something’ is not just not broken, it is working very well in tandem with strict enforcement against unlicensed moneylending,” said Assoc Prof Goh.
But Ms Indranee said there is “no evidence” that a tightening of credit – from recommendations put forth by the Advisory Committee on Moneylending three years ago – pushed more borrowers to unlicensed moneylending. In 2016, there were 550 reports of unlicensed moneylending, which saw 1,100 people arrested, down from the 1,255 arrests made in 2015, she pointed out.
The MPs were also concerned about the proliferation of loanshark advertisements through SMS messages.
Chua Chu Kang MP Yee Chia Hsing said some of his constituents received unsolicited messages from unlicensed moneylenders after they approached licensed moneylenders. He asked how government agencies would ensure that licensed moneylenders do not pass customer information to their unlicensed counterparts.
Ms Indranee said any licensed moneylender found to have colluded with an unlicensed moneylender will have its license revoked, and will be prosecuted under the Moneylenders Act.
Asked by Mr Desmond Choo (Tampines) and Mr Louis Ng (Nee Soon) if MinLaw plans to clamp down on illegal advertising, Ms Indranee said the police will investigate the identity of the person sending any reported spam message. They may then contact the telecommunication companies to terminate the SIM cards used.
Other changes passed aim to improve the transparency and accountability of moneylenders. They will be required to incorporate themselves as companies and submit audited accounts to the Registry of Moneylenders annually.
There will also be tighter approval requirements on the shareholders and personnel of moneylending businesses.
